Scrapping the controversial local body tax (LBT) for traders in urban areas in Maharashtra almost entirely, the goverment on Friday announced that it would compensate the civic bodies by sharing revenue earned through the stamp duty collections on property transactions in these belts.
Although the state government had announced plans for rolling out the contentious tax from August 1 in March, confusion had earlier prevailed on the means to compensate the municipal corporations for the loss after the withdrawal of the tax, which is the largest revenue earner for most civic bodies.
A proposal for imposing an additional surcharge on the value added tax (VAT) had met stiff resistance from elected representatives hailing from the rural belts. Mayors of the affected cities too had protested the move, arguing that it would impact their autonomy.
But on Friday, Chief Minister Devendra Fadnavis ended all speculation in this regard, announcing that the government would dig deeper into its own revenues to compensate the local bodies.
Accordingly, the LBT will be discontinued in all the 25 municipal corporations where it is in force, from Saturday.
Fadnavis, however, introduced a rider. The govermment will continue with the levy for 1,162 traders and business houses, whose annual turnover is over Rs 50 crore. Fadnavis declared that the roll back would benefit 99.85 per cent traders and business — 8,08,391 out of 8,09,553.
The BJP had run an election campaign where it had promised abolition of LBT. Government sources, however, conceded that the move will put further burden on the cash-strapped finances of the state.
Maharashtra has already run into a public debt of Rs 3.38 lakh crore. While the government had already raised supplementary demands worth Rs 2,098 crore to compensate the civic bodies for the loss during the ongoing monsoon session, Fadnavis conceded that the total additional burden following the move would come to Rs 7,649 crore in 2015-16.
While the government patted its back for rolling back the tax without levying any additonal tax, the Opposition poked holes in it.
Maharashtra’s former finance minister and NCP legislator Jayant Patil said that the financial position of the state would further deteriorate.
Fadnavis, meanwhile, said that the decision to continue levying the tax for all those with an annual turnover of Rs 50 crore had been taken to avoid windfall gains to these private firms.
“Extending the benefit to these traders would have resulted in a loss of Rs 1,800 crore to the state exchequer,” he said.
The CM further said that an independent fund would be set up to compensate the urban bodies to ensure that the distribution of funds to these bodies is not delayed. The government granted further relief to traders by extending the amnesty schemes till July 2016.
Although the Opposition questioned the financial burden on the public exchequer, Fadnavis said that the government was in a position to cover for it. As per government’s estimates, the compensation will only have to be provided to 18 out of the 25 civic bodies. He also said that abolition of the tax will bring in more investment and revenue.
The state government is hoping that the Centre’s goods and services tax (GST) will become applicable from the next financial year to narrow down its own loss following LBT’s abolition.