What is Local Body Tax and how it is Different from Octroi?

What is Local Body Tax?

Local Body Tax (LBT), to be imposed in Maharashtra from October onwards and will be valid on the sale or consumption of certain products.

It was proposed in the state budget as a replacement for Octroi, as per the Government directives to the BMC. Local Body Tax attempts to speed up goods movement, stressing self-declaration of goods by traders who will maintain Local Body Tax accounts.

How is it different from octroi?

Local Body Tax gives direct access of accounts and turnovers of merchants. Earlier, octroi was charged on the material that came into the city, but Local Body Tax will be charged on overall turnover of merchants.

Trader has to pay the tax once every 40 days using online portals, cheque, demand draft or cash through a designated bank or counters of the civic bodies.

According to traders, the tax will be an addition to the existing Value Added Tax (VAT).

Revenue system

The current cash flow of the administration will change in this system, as they will get the revenue every month-end and not on an annual basis.

Traders claim that if they have to pay more taxes, they will finally levy it on the buyers, as the end product will cost them more. The tax varies from 0-7 per cent, depending on the goods.

But why are traders/manufactures protesting if Local Body Tax is merely replacing octroi?

What is Local Body TaxRetailers, wholesalers and manufacturers contention is that octroi abolition and imposition of Local Body Tax simultaneously is a betrayal. With VAT in place across the country, a double-tax regime is not acceptable, they say. Prices of goods are affected by VAT as well as by state or municipality-level taxes.

Also, complying with various rules on self-declaration, record maintenance, account books, etc could be an added cost under the LBT regime. Government sources say tax evasion under the octroi regime was simpler, another reason traders are opposing LBT.

Have all Maharashtra municipalities imposed the tax?

Out of the 26 corporations, 24 have migrated to Local Body Tax. Mumbai and Nashik will do so later this year.

Below is the Full Local Body Tax Rules

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