Some ruminations on LBT Agitation in Maharashtra
Traders in cities from Maharashtra are rightfully agitating over proposed introduction of LBT because of their concerns about multiplicity of indirect taxes and related compliances
Problems with existing LBT model are as under
1. While acceptance of trading community was obtained for VAT in 2005, Maharashtra Govt had promised abolition of all other taxes mainly octroi. This promise has been breached since then and to make matters worse for businessmen, new tax has been pushed onto them.
2. Even if for argument sake, it is accepted that LBT is required to be collected in lieu of octroi, compliance under LBT can be easily linked with VAT compliance. VAT return formats can be easily modified to obtain information about Out of City Limit (OCL) purchases made within respective municipal limits, as a part of existing information columns for Gross Turnover of purchases by dealer in the State of Maharashtra. Payment challans can also be provided for LBT to be paid to respective municipal bodies in addition to Challan form available for VAT payment. E Filing of Returns is now mandatory under VAT in Maharashtra and therefore municipal city wise purchase details can be easily entered by a registered VAT dealer.
3. Composition schemes available under VAT can be extended to LBT with some extra percentage to be paid towards LBT.
4. Such linkage with VAT will solve most of the troubles of business enterprises for compliance under LBT. Assessment and appeals under LBT also can be suitably covered under VAT provisions on this account. VAT based payment of LBT in this manner will be not only tax payer friendly but also will ensure payment only with respect to goods brought within city limits.
5. Draconian provisions for raids and long period of maintenance of records in existing LBT law will harm progress of trade and industry in Maharashtra.
A Better Alternative:
Looking from another angle, socially regressive tax like LBT can be gainfully replaced by scheme of progressive taxation under Property tax, in a manner that will compensate the local bodies for loss of income from octroi. Since LBT will be now paid by business establishments, property tax rates for shops and factories can be simply linked to FSI occupied by them, so that liability of any enterprise can be easily measured and will no scope for corruption and manipulation. Payment dates for Property (LBT) tax can be staggered to meet monthly revenue needs of municipal corporations.
Multiplicity of indirect taxes is the problem sought to be overcome with GST, whereas actions of Maharashtra government are going in exactly opposite direction, which needs to be avoided at all costs in the interest of economic growth.
CA Mukund Abhyankar