Gujarat may do away with octroi next fiscal

NEW DELHI: The tax reform bug, it seems, has bitten states as well. Gujarat may soon join the league and remove octroi. The state government is planning to do away with the tax next fiscal as it is considered an anomaly in the value-added tax (VAT) regime.

Octroi is a municipal levy on the entry of goods into a municipal or local area for use, consumption or sale. Gujarat and Maharashtra are the only states which levy octroi at present. In Gujarat, it is levied selectively in some municipal corporations, with the maximum octroi rate applicable being about 4%.

Gujarat is to go to polls this year and the state government, under immense pressure from the traders’ lobby, is keen to remove such irritants to further its industry and trade-friendly image. It is mulling over a proposal to remove octroi from the beginning of next fiscal, a source told ET. The state government is yet to take a call on whether it would also replace the levy with an entry tax like other states, the source said. Most of the states which have removed octroi have replaced it with an entry tax which is VAT-able.

The new tax has the stamp of approval from the empowered committee of state finance ministers as it allows for credit which can be set off against VAT. Assam, Chhatisgarh, Haryana, Karnataka, Madhya Pradesh, Orissa and Rajasthan impose entry tax for which credit cannot be taken. All local taxes will have to go once the government rolls out the single goods and service tax from 2010. Central sales tax will be phased out. A bill laying down the roadmap for the phase out of the tax was introduced in Parliament last week.