SMEs against local body tax imposed by Maharashtra govt.

Indian Small and Medium Enterprises (SMEs) have expressed concern over the Local Body Tax (LBT), which the Maharashtra government has recently started imposing on traders across the state.

Arun Doshi, Senior Vice-President, Federation of Associations of Maharashtra said to SME Times, "The Local Body Tax (LBT) has been introduced by the municipality of Maharashtra. We want the government should stop this LBT in Mumbai as well as in the entire Maharashtra."

In accordance with state government directives, LBT has replaced the existing Octroi system in Nagpur, Thane, Pune and Pimpri-Chinchwad from April 1. The system will be put in practice in Mumbai from October 1.

"This is an illusion. When Octroi was there then there was lots of corruption in the market. We had to bribe the Octroi officers to let our goods pass through at the Check Naka (Check Post). For instance, if the Octroi is about Rs. 1 lakh then the corrupt Octroi officials will let the goods pass through only paying them Rs. 20, 000 at the check post. So, the officers took the money themselves by making an understanding with the truck drivers, dealers, etc.", a small scale manufacturer based in Mumbai said in condition of anonymity.

"Now, with the implementation of Local Body Tax from April 1 to the State of Maharashtra excluding only Mumbai, which will be put in place on October 1, things will only be more difficult for companies, particularly for small and medium entities," he added.

Also, the manufacturer said, it will be difficult for them to keep a track on the LBT. "If we are not able to pay LBT or paying less to the government they will impose 10 times more penalty for us. Moreover, if we are not able to pay, the terms says, we have to pay 2 percent interest per month for the first year and 3 percent per month for the second year. Due to different rates of LBT, tax on the different commodity, traders will be on mercy of the LBT officers. This will also lead to more corruption," he said.

"If you see in India, there is no state that have Octroi. Gujarat you take, they are free of any such taxes. Why this kind of taxes are there in Maharashtra? If the government is not taking any initiative to remove Octroi and stop Local Body Tax, then all the shops will come to closure here. They will shut down their business because they will not earn much profit if they are giving all the profits earned in taxes and inputs costs. All retail shops, factories in ready made garments, commodities, etc, will face problem. It is important that the government does something, which is needful to help the people of Maharashtra."

Further he added, "The LBT is not VAT-able. There is no set off of LBT like other government taxes. For example: Sales Tax, VAT, Central Excise and Service Tax. VAT is by state government whereas central excise and service tax are taken by central government. In some cases, LBT's tax percentage goes even higher up to 10-12 percent like dealer of Pune send their goods to Vashi then the Pune dealer pays 4 per cent LBT and Vashi dealer pays 3-4 percent of LBT. Again from Vashi it goes to Nagpur paying 4 per cent LBT. It becomes very expensive to run any trade or industry."

"For any SSI manufacturers (converter or job worker), they have to pay LBT on the value of the goods who receives on job work basis and not on the value addition. For example: Goods of hundred kilos where per kilo value is Rs. 100 which is equal to Rs. 10,000. So, LBT 4 percent is equal to Rs. 400. The value addition to covert hundred kilo where per kilo is Rs. 4 is equal to Rs. 400 (the margin of Rs 400 is 50 paise per kilo is equal to Rs. 50 further from that they have to pay income tax also) after excluding electricity charge, labour charge, water charge and other overheads," the manufacturer in Mumbai said.

In this context, Doshi also said that LBT is imposed on the turnover of the company annually. And, the Octroi has been applied on the physical movement of goods. But, the percentage value on each and every commodity under LBT will vary. "It will vary from 0.5-7 percent according to various items. Likewise, for chemicals it may be 2 per cent and for gold it may be 0.5 per cent," he mentioned.

SME Times also spoke to Iqbal Memom, a Mumbai based trader who was protesting in the ongoing strike in Mumbai on Thursday to understand the status of their demands.

Memom informed that the strike will continue if the government is unwilling to look in to the matter seriously.

"We are protesting so that the Octroi and LBT gets removed," he added.

They (traders) on Thursday met the Chief Secretary of Maharashtra Government, J. K. Banthia to discuss the issue and bring a consensus. Till yesterday, the government was unwilling to talk about this issue. 

In their discussion with the government earlier, they (traders) have asked to remove Octroi but they are willing to continue paying the VAT charges. "But the government has accepted to remove Octroi from Oct 1 but they are now implementing Local Body Tax (LBT), which will hit traders located in Maharashtra," Memom said showing immense disappointment.

Industry stalwarts said till the time the government will not listen to their voice, the massive strike spreading all over Maharashtra will continue.

"This will continue and it is spreading to the entire state slowly. We will not stop until and unless the government resolves the problem amicably. It is spreading like wild fire," they commented.

The strike against this issue started on April 22 and has reached its 11th day today. The traders are scheduled to meet the Chief Minister, Prithviraj Chavan on May 4 to place their demands in front of him.