Friday, February 6, 2015

New taxes from 2016 after Octroi is abolished

While the Octroi is set to go by March next year, the Mumbaikars will have to brace for a slew of additional taxes that Brihanmumbai Municipal Corporation (BMC) controlled by Shiv Sena-BJP combine will collect from 2016. Though no new taxes have been announced for this year, the municipal commissioner Sitaram Kunte has said that the BMC will be compelled to enhance the existing taxes or introduce new taxes in the years to come if the Octroi is abolished.
BMC. Reuters image

The total size of the budget estimates, which was presented before the civic standing committee on Wednesday, for 2015-16 is Rs 33,514 crore which is 27.25 percent higher than last year’s budget of Rs 31,178 crore. The budget of the civic body, believed to be the richest civic body in Asia, is larger than many small Indian state government budgets including Goa, Himachal Pradesh, Utttarakhad, Manipur, Arunachal Pradesh and others.

"The revenue from Octroi is the main source of revenue. It is estimated to be around Rs 7,900 crore which is about 41.03 percent. Thus Octroi continues to be the prime revenue source of the BMC. Octroi is a liquid source of income. Cash is collected daily which is used as a working capital to run the day-to-day affairs of the BMC. The main features of Octroi are liquidity and buoyancy which enables us to maintain cash flow and keeps us economically self-dependent," Kunte said in his statement spelling out the importance of Octroi for the BMC’s coffers.

Kunte further stated that the abolition of Octroi, which has played crucial factor in budgetary planning since last several years, will adversely impact the revenue of the BMC. “The BMC may be compelled to enhance the existing taxes or introduce new taxes in the years to come. The new taxes like property tax, transport cess, conservancy cess and fire cess may be some of the available alternatives for augmenting the BMC’s future revenue and capital expenditure requirements,” he said.

The Union Government has introduced 122nd Constitutional Amendments Bill in the Loksabha on 19th December, 2014 to facilitate the introduction of the Goods and Services Tax (GST) regime in India. GST will replace all indirect taxes levied on goods and services by the Central and State Governments. The amendment bill seeks to omit Entry 52 of the State List of the Constitution of India which empowers the Municipal Corporation to levy Octroi/LBT. Once this amendment is enacted, the powers given to Municipal Corporations to levy octroi will not be in existence.

Due to implementation of the GST, additional tax will be assigned to States from where the supply of goods originates. However, there is no clarity yet on the mechanism to offset the revenue loss experienced by ULBs like Mumbai, Kunte said. The Centre is likely to reimburse the state with the difference in the revenue once it is implemented.

The BMC’s ambitious coastal road project was the only big ticket infrastructure project in the civic body’s budget. Since the project yet to get green clearances, it has set aside only Rs. 200 crore for the project this year.


Interestingly, the budget had several schemes that take a leaf out of Prime Minister Narendra Modi’s schemes. From Modi’s pet Swaccha Bharat Abhiyan and Beti Bachao Beti Padhao scheme to his ‘ease of doing business’ initiative, the smart city project and Digital India policy, Kunte adopted several of the PM’s flagship schemes for the city. In a bid to promote industry and in tune with Modi’s bid to fast track clearances to industrial projects, BMC has set up an in house Business Development Department to increase the ‘ease of doing’ business in the city.

Development of roads, open and cultural spaces and gardens in the city dominated the budget as the civic body has set aside Rs. 3200.25 crores for construction and repairs of roads and bridges in the city. Apart from roads, the BMC has allocated a lot of funds for the development of open spaces and gardens in the city.

In a bid to improve quality of slums, Kunte has set aside Rs. 8471 crore for extension of services to the urban poor. Under this scheme, slums will be upgraded in a systematic manner. BMC has decided macro and micro level planning for slum improvement. However, at the same time, it has also proposed taxing slums. “We are studying the feasibility of levying and recovering property tax on hutments in slums,” Kunte said.

Source: First Post