Cabinet may script end to octroi on Fri

MUMBAI: The octroi system of cess collection may finally be given a burial in Maharashtra. The Vilasrao Deshmukh government is expected to clear a plan recommended by over a dozen committees to do away with the archaic Act this Friday.

Octroi is levied on entry of goods in municipal areas and has been a major source of revenue for local bodies. Mantralaya sources said the government could give approval to abolition of octroi at a Cabinet meeting.

To allow municipal bodies to maintain their revenue flow, the government has three options. It may allow the municipal corporations to collect their own professional tax, create additional value-added tax or permit them to raise property tax. “Considering the impending municipal elections, the last option can be ruled out,” an official associated with the exercise said.

The state government’s move comes a couple of months after a study group — the 13th on the subject, headed by principal secretary (finance), Subodh Kumar — recommended abolition of octroi. The group’s report titled ‘Devising alternatives to octroi’ suggested the imposition of a municipal profession tax, in addition to the one being charged at present. Additional VAT of 0.4% would finally translate into a sum close to Rs 1,800 crore.

It also recommended a shift to the capital value system of assessing civic property tax that would ensure a quantum growth in property tax collection. “All the municipal commissioners on the group were unanimous that the municipal corporations could make up for the entire loss of revenue by adopting the capital value system of property tax,” Mr Kumar had said when the report was made public.

“Octroi has been a major deterrent for industries and trade in the state,” a government official noted. “It’s not just the money they lose, the system has been time consuming and full of corruption,” he added. As of now, some 22 municipalities in the state collect Rs 5,572 crore from octroi annually.

“Municipal bodies shall be permitted to impose and collect their own independent professional tax. Imposition of profession tax by the ULB’s (urban local bodies) would require enactment of a separate Profession Tax Act.

They will have the option of collecting municipal profession tax themselves or use the sales tax department for the initial years,” the report had stated.

During the last Monsoon session of the state legislature, the government had proposed a Bill enabling major municipal corporations in the city, including the BMC, to shift to capital value system. However, political pressure forced the government to refer the draft Bill to a legislative committee.