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The A,B,C of LBT that has got businessmen all worked up

As a bandh fever grips the state,with transporters,traders,builders,wholesalers,pharmacists and others protesting local body tax (LBT) in the past few weeks,we look at the new form of indirect tax.

Written by Sharvari Patwa | Published: April 30, 2013 4:25 am

As a bandh fever grips the state,with transporters,traders,builders,wholesalers,pharmacists and others protesting local body tax (LBT) in the past few weeks,we look at the new form of indirect tax.

What is LBT? When will it come into force in Mumbai?

It is a tax traders will have to pay on goods they import to the city. Unlike octroi,which is collected in cash on a daily basis at check posts,LBT is an account-based regime under which traders and businessmen will make monthly payments by way of self-declaration. Goods will be taxed in slabs of 4,5 and 12 per cent. The new tax is expected to bring transparency in collection and curb corruption as traders maintain accounts and file half-yearly and yearly returns. The idea is to remove bottlenecks in tax collection and speed up goods movement. LBT will be implemented in Mumbai in October.

In a nationwide value-added tax (VAT) regime,does LBT amount to double taxation?

LBT,unlike VAT,will be collected at multiple points. While a trader who registers for VAT pays it only at one stage,which is when he sells goods,LBT will be collected at the time of entry of goods in a city. VAT and LBT both affect the final price of goods,with the end-user ultimately bearing the burden.

Is LBT revenue-neutral for BMC?Or is it octroi with another name?

Municipal corporations are yet to finalise LBT rates for various goods but the state government wants to ensure revenue netruality (it will help BMC earn same revenue as in the octroi regime). The octroi leak in the city is as high as 60 per cent. LBT will be difficult to evade. It will be paid monthly and there would be yearly or once-in-three-years audits.

How many municipal corporations in Maharashtra have introduced LB? What has been the experience?

Twenty of 26 introduced it in 2010 and Pune,Navi Mumbai,Pimpri-Chinchwad and Thane municipal corporations on April 1 this year. Mumbai and Nashik are to introduce it in October. Mostly,the new tax system has worked well and increased revenue.

How does it impact traders? Will it add to their cost?

Traders claim it will increase compliance cost. Maintaining seperate account books,ensuring timely payment of LBT,filing half-yearly and yearly returns may be a burden for small businesses with a turnover of over Rs 3 lakh. As per the definition of ‘dealer’ in LBT Rules 2010,practically everyone with a turnover of over Rs 3 lakh and importing goods worth over Rs 5,000 will have to register.

Why are traders opposed to LBT?

Traders want all indirect taxes abolished and a single-point system such as VAT in place. LBT puts them at a disadvantage againt their counterparts in states such as Gujarat and Punjab which have VAT. LBT will not only increase compliance cost but also deny traders the opportunity to evade tax. Also,many traders will have to pay more in the LBT regime than they used to in the octroi regime.

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