Will the Local Body Tax (LBT) levied by the state government on traders, prove to be the Achilles’ heel for the government in the coming elections? Looking at the current environment prevailing in the state, the probability seems to be greater than lesser. Labelling the LBT as draconian, conducive to corrupt practises and capable of pushing the state back into the ‘Inspector Raj’ era, traders who were once lobbying to abolish octroi, are now aggressively opposing the replacement tax and have brought business to a complete standstill over the past 21 days .
In this battle of domination, it will be interesting to see who will blink first? With the uncompromising stance taken by the chief minister, and traders getting aggressive by the day, the situation in all probability is likely to worsen and the common man will have to bear its brunt.
The Local Body Tax -Sthanik Sanstha Kar (account based cess) which is to be collected by Local Municipal Corporations on every input of raw material and import of raw materials from other states or outside the municipal corporation territorial limits by businesses, traders and industrialists is the 43rd tax levied by the government on the trade and industry in the last 66 years of independence.
Every trader, shopkeeper, industrialist, job workers (labour jobs), service oriented industries, transporters, warehouses, logistics, showrooms, small vendors, hotels and restaurants and builders and many more (including professionals) have has to obtain a registration from local Municipal Corporation. Dealers registered under MVAT are deemed dealers under LBT and have to comply with LBT law.
“The Trading Community is already so over burdened with bureaucratic procedures like following rules and procedures thereof, filling up challans and returns under various Acts & Rules, undergoing assessments from various State & Government Taxation Agencies; that it hardly leaves any scope for imposing a new LBT system,” says Surendra Savai, President, Mumbai Textile Merchants Association.
With LBT, the shopkeeper will have to pay the tax using various modes of channels. This could be over the counter at the civic body, the authorised banks, or even at the LBT portal which the civic body will put in place. All traders / shopkeepers, who sell goods worth more than a certain amount, have to pay this tax. And, as per the LBT rules it is the responsibility of the traders to maintain records and also pay the tax.
But there is a draconian side. In case of late payment of LBT even for one day, traders will be charged at 2% interest for entire month and there after a heavy penalty and interest at 3%. There is the possibility of goods being confiscated and even being jailed due to default “The Act & Rules framed for LBT are so harsh that no trader, howsoever, he desires, can completely comply with the same. Besides, it will result into harassment and corruption,” he says.
Even the prestigious Indian Merchants Chamber (IMC) has come forth in support of the traders against LBT. Says Niranjan Hiranandani, President IMC, “after carefully studying the provisions of the LBT Act, which is being introduced effective October 1, 2013 in lieu of Octroi, it seems like the case of cure is worst than disease.” “We feel that creating multiple centres of tax registration and collection is not advisable since it will create havoc in the system and encourage corruption,” he says.
“It is our considered view that the taxation to be levied in lieu of Octroi should be integrated with VAT collection by adding 0.5 to 1% Surcharge with a clear provision that the additional 1% Surcharge would be diverted to the BMC or any other local bodies. This will allay fears of BMC that they will not get funds from the State through VAT collection and they will go bankrupt after the abolition of Octroi,” Hiranandani adds.
What the traders most fear is the unlimited power given to the inspectors by the law.
“Inspectors have powers to search and seize and intercept goods laden tempos, trucks, hand-carts etc. under the pretext of checking whether LBT has been paid on the goods in transit. These unbridled powers will be more often than not misused by the Inspector Raj to collect illegal gratification,” says Mohan Gurnani, president, the Federation of Associations of Maharashtra (FAM).
“Revenue collection is entrusted to agencies like Income-Tax, Sales Tax, Central Excise & Customs Department, and in case of land revenue the powers are given to Collectors. It cannot be the task of Civic body staff to pursue revenue collection by ignoring their basic duty,” he says. Gurnani is heading the ongoing strike with 750 wholesale trade associations under FAM. The traders have lost around Rs 75,000 crore in turnover so far due to ongoing strike.
Echoing similar sentiments, Suresh Kotak, Chairman, Forum of Affiliated Associations, IMC says that LBT will adversely impact the final costs of the goods and services as it will be difficult to claim refund. “There will be a cascading effect leading to inflation. There is no time limit given to refund the excess collection of LBT. Dealers will be charged 2% interest on late payment of LBT besides penalty, interest etc. on short payment,” he says.
“While the Government of India is trying to eliminate the number of windows and is pursuing to put in place a one window system, the Government of Maharashtra is introducing one more window in the form of LBT, which would breed corruption,” he adds.
But the statements given by the Chief Minister Prithviraj Chavan indicates that he is in no mood to relent over the Local Body Tax (LBT) impasse. “First of all let me make one thing clear that the state is firm on implementing LBT and will not backtrack. After extensive deliberations, the government decided to introduce LBT,” he says. “The fact is a handful of people are misleading the small traders on the newly introduced tax”, he alleges. When asked about traders’ demand to increase VAT by one per cent instead of introducing LBT, Chavan said, “It is not possible because VAT is for the entire state. If a cess is charged on VAT, people from rural areas will also be affected.”
Chavan further adds that the objective of introducing LBT in lieu of octroi was to make the municipal corporations financially stronger. “The government has authorized the municipal corporations in the state to decide the rate of Local Bodies Tax”, he says “I am appealing to the traders opposing the tax to stop misleading people on the issue. The government is ready to step forward by discussing the issue with traders association. But the traders should not harass the people”, he says.
“But I am making one thing clear that whatever provisions for the implementation of this law, will be done in the State Legislature,” he adds in a tone of finality.
Powers of inspectors under LBT?
- Stopping any vehicle (including personal & private, vehicles) within the area of Municipal Corporation, as long as necessary, till the satisfaction of the commissioner.
- Unlimited search and seizure powers which are so far reaching that they are not even available to Income Tax and Central Excise Commissioners.
- There is no appellate authority and as such the decision of the Municipal Commissioner is full and final.
LBT Tariff
- LBT Tariff and rates are based on Central Excise Tariff
- LBT rate will be levied from 1% to 7% depending upon the type of raw material.
- It is a purchase tax and cannot be passed on to others by way of sell invoice or cannot be set off.
- Export through merchant exporters will not be entitled to claim a set off in return and have to pay LBT on that amount.