By: Ajay Khape & Manoj More
With the state government declaring implementation of its decision to abolish local body tax (LBT) from the middle of the financial year 2015-16, the Pune and Pimpri-Chinchwad municipal corporations are likely to face trouble. Though the state government has said it would compensate the civic bodies for the revenue loss, there would be no specific replacement for LBT.
Among the various poll promises, the BJP had announced abolition of LBT in the state after traders had opposed the tax imposed in 2013 as a replacement to octroi collection by local civic bodies. The civic bodies in the state have been since collecting LBT, which has been the main source of their revenue that ensured smooth running of the civic bodies.
The BJP, after coming to power, has been under pressure from traders and Opposition parties for not fulfilling its promise of abolishing LBT. The government had once declared abolition of LBT from April 1 but has now postponed it till August 1.
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In the estimated budget of Rs 4,479.5 crore for 2015-16, the PMC had expected a revenue collection of Rs 1,495.58 crore to meet its various expenditure. Similarly, the Pimpri-Chinchwad Municipal Corporation was expecting a revenue of Rs 1,100 crore. The civic bodies had already expressed their reservation over the idea of LBT abolition fearing its impact on the performance to meet the people’s basic civic needs.
“The state government had declared abolition of LBT in the past (without giving a date), which had dropped the revenue collection of PMC as traders stopped paying the tax. Now, the decision to implement it from August has put the civic administration in problem as traders would again ignore to pay the tax till then and the state government would not compensate the revenue loss for that period,” said a PMC officer.
“PCMC has to complete several key projects and is already facing cash crunch. If LBT goes, it will put development projects in jeopardy,” said an official.
Going by the past experience with the state government on funds to civic body, a civic officer said if the PMC had to rely on the state government for compensation due to shortage of revenue after abolition of LBT, it would have to wait before planning its expenditure or face financial crisis. Civic officials said the state government while doing away with LBT had promised to compensate the civic bodies. “Octroi was replaced by LBT, but now there would be no replacement for LBT. The government from its own revenue collection has decided to compensate the civic bodies. One of the ways being mulled is levying cess on VAT,” said another civic officer.
PCMC Commissioner Rajeev Jadhav said the civic body had envisaged a revenue collection of Rs 1,100 crore from LBT, which would now come from the government. “The state government had promised to compensate our revenue collection every year. Since LBT is being scrapped from August, the government will consider the four months’ LBT collection and compensate PCMC for eight months,” he said.
As per the new order, Jadhav said, the government would collect surcharge on VAT and the revenue collection would be passed on to the civic bodies. “PCMC will certainly have to revise projects by giving top priority to mandatory ones and going slow on others,” he said.
According to Jadhav, PCMC also collects Rs 800 crore from property tax, building permission, water tax and other sources. “But our biggest source was first octroi and then LBT. We are hopeful that the government will compensate us for the revenue loss,” he said.
Chandrashekar Chitale, Chairman, Direct Taxation Committee of MCCIA, said the removal of LBT from August 1 would create trouble for both traders and enforcers. “For the traders, it would mean complexities in calculation of taxes as they have to pay LBT for the first few months of the financial year and then it will be stopped,” he said.
Meanwhile, BJP MLA Madhuri Misal said the scrapping of LBT by the state government was a decision the party had promised before the assembly polls. “The state government has lived up to its promise… It is a good decision,” Misal said.