The Maharashtra government is actively considering abolishing local body tax (LBT) and octroi in the state and putting in their place a 2.5-3% surcharge on value added tax (VAT).
Chief minister Prithviraj Chavan said at an event on Tuesday that there is a strong demand for LBT's elimination. "We have no option but to go ahead with an increased VAT. We will have to make requisite changes in the law, following which the official announcement will be made," he said. The CM noted that traders had sought a surcharge of 1% on VAT, but this could not be acceded to since it would not "cover the amount the local bodies were getting through octroi and local body tax".
LBT is the tax imposed by local municipal bodies on the entry of goods into a "local area for consumption, use or sale therein". Barring in Mumbai, LBT has replaced octroi across Maharashtra. The state is projected to earn about Rs 14,000 crore through LBT in the current financial year.
Its revenue from VAT, meanwhile, is reported to be close to Rs 60,000 crore. Mohan Gurnani, president of the Federation of Associations of Maharashtra, said traders are ready "to pay tax, but we want the system to be free of corruption and red tape". He added that a flat 2.5-3% surcharge on different VAT slabs would raise prices of goods considerably, so "we are proposing a 20% hike on each VAT slab".
Traders want the government to calculate 20% of each slab percentage separately and increase the slab individually by that result. But government officials maintained that the formula suggested by traders would put a greater burden on common consumers than the way out being actively considered by the state.