Octroi lives to die another day

MUMBAI: Over a dozen committees in the last 47 years and still counting. All for one mission: to abolish octroi. The Maharashtra government has kept its drive to find an alternative to octroi alive even though it has shown scant respect to recommendations made by over 11 committees led by eminent personalities such as Minoo Masani, Rafiq Zakaria, Raja Chellaih and Vijay Kelkar in the past.

Last week, the state government set August 12 as the deadline to receive suggestions and objections to a report by a committee headed by finance secretary Subodhkumar to find an alternative to octroi.

The state government has done the exercise over 12 times over the past 47 years, to get rid of octroi. A senior official from the finance ministry opened its archives for ET to throw some light on the government’s apathy over the issue.

The first such committee was set up way back in 1959 and was headed by eminent scholar Minoo Masani. Having described octroi as a “national waste”, Mr Masani emphatically recommended its abolition. Nothing happened. Four years later, the equally respectable Rafiq Zakaria made similar recommendations. The fate of his report was similar.

Panels were appointed at regular intervals but their recommendations (all of them wanted octroi to be abolished) were repeatedly ignore. A number of veterans in the finance sector including Raja Chelliah and Vijay Kelkar, have graced the Maharashtra government’s octroi study group.

The dreaded municipal tax, however, continues to live. According to sources, the Maharashtra government now is planning to get rid of octroi in “phased manner”. As suggested by the youngest of the committees, Subodh Kumar committee, the government thinks the regressive tax system could be eliminated provided the state government compensates municipal bodies for first few years..

According to sources, for the current year, the cost of removing an age old tax could run in Rs 6,000 crore which can be recovered by introducing municipal professional taxes and reviving user charges in municipal areas. Later, the government can think of entry tax, the committee is understood to have suggested.

A section of the finance ministry is of the opinion that the necessary freedom be given to municipal bodies to generate their own resources. “The government may consider some kind of profession tax by bringing various professions under tax net and allowing the local self government to levy tax their services,” a official said.

Besides octroi, property tax is the major source of income for municipal bodies. The government would want to revise the tax structure should it accept to abrogate octroi. The government may have to part with some of the revenue it earns through the shops and establishment tax.

“There are various ways to make municipal bodies self sufficient. What is lacking is a political will to make them so,” a finance ministry official said.