LBT compensation still ambiguous

Mumbai: The Centre has promised to compensate states in lieu of the goods and services tax (GST), but the state government has to compensate local bodies to the tune of Rs 33,000 crore for abolishing local body tax (LBT) and there is no clarity as to how it will do so. The draft bill, which will be presented in the special session of the legislature on Saturday, will seek to address some of key concerns regarding the GST.

The main objection — the autonomy of the Brihanmumbai Municipal Corporation (BMC) — was raised by the Shiv Sena, a Bharatiya Janata Party’s (BJP) ally, which is ruling civic body.  The BMC might lose Rs  6,000 to Rs 7,000 crore as octroi would get written off after the introduction of GST. The state government has promised to compensate local bodies and protect their independent sources of revenue. However, there is no clarity over the LBT, which was abolished by the state government. The loss due to abolition of LBT in the region of Rs 33,000 crore, which the state will have to bear and compensate local bodies, an official from the finance department said.  

The ordinance that will be introduced on Saturday has a clause that says the amount of compensation will be credited to the local bodies’ bank account by the fifth day of each month. The Centre will be giving the compensation to the state every two months, the official said.

Once GST comes into effect, all central and state-level taxes and levies on all goods and services will be subsumed within an integrated tax that has two components: a central GST and a state GST. The state government will be introducing its own GST bill during the session. It will also be making amendments in other Acts, as the other taxes to be merged in the GST.

The state will get its revenue from stamp duty and registration, excise and vehicle tax. The remaining taxes will either be merged with the GST or written off completely.

After GST comes into play what will go:

• Additional duties of customs (commonly known as CVD)
• Service tax
• Cesses and surcharges (insofar as they relate to supply of goods or services)

The taxes that will be subsumed with GST

• Value added tax
• Sales tax
• Purchase tax
• Luxury tax
• Entry tax like octroi
• Entertainment tax (not levied by local
• bodies)
• State cesses and surcharges