The Brihanmumbai Municipal Corporation (BMC) that lost a source of revenue after octroi was replaced by the Goods and Services Tax (GST) will Wednesday receive the first installment of compensation promised by the state government. The civic body used to earn an annual revenue of Rs 7,200 crore from octroi.
While the first installment of Rs 650 crore will be handed over to the BMC by Finance Minister Sudhir Mungantiwar, the annual amount will be fixed by the Comptroller and Auditor General (CAG) later this month. Civic officials said an event was being organised at the BMC headquarters and Mungantiwar would hand over the first installment to the BMC in the form of a cheque. A senior civic official said the CAG was currently working on an audit of the income from octroi before the annual amount was finalised.
“The amount for the first installment has been roughly calculated considering an average annual income of about Rs 6,900 crore from octroi, excluding around Rs 250 crore paid as refunds. The CAG is expected to give a final figure in the next 8-10 days, after which the monthly amount will be adjusted,” he said.
The official added that in order to ensure that there was buoyancy in the compensation amount, the government would either give an interest of 14 per cent every five years or 8 per cent compounded interest every year. “The revenue we were getting from octroi imposed as an entry tax on goods was a figure that would increase every year. The compensation should increase as well and between the two options, 8 per cent compounded interest seems to be more beneficial for the BMC right now,” said the official.
Citing another concern of delayed payments voiced by the BMC, the official said the state government had a solution to the issue. “The state has ensured that in case of a delay in releasing payment, the bank has been instructed to transfer the amount to the BMC on a decided date and debit the amount from the state government’s account. This rules out any delay that can interrupt the daily functioning of the civic body,” he added.
The civic administration will make certain changes to its payment cycle in order to adjust to the monthly mode of payment instead of the daily collections that were made from octroi. “Earlier, we were getting around Rs 18-19 crore from octroi collection that was used for daily expenses of one department or the other. Since the payment will now be made on a monthly basis, some adjustments will be needed to be made for the first month. For instance, we will have to postpone some payments and regulate the cash cycle as part of treasury management,” said the official.
The 1,300 employees at the five octroi nakas ceased to collect taxes as the GST was rolled out on July 1. Between April and June 30, the BMC collected Rs 1,864 crore from octroi.