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Old 13th May 2013, 12:58   #1
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Default The LBT: Local body tax Fiasco

People living in the other parts of the country would perhaps recognize these words based on the blabbering of mostly imbecile 24x7 news channel "reporters".

For those who actually live in the cities that used to have Octroi earlier (like Mumbai, Thane, Pune - basically the cities in Maharashtra), the govt had proposed a replacement called Local body tax. Like the Octroi - this tax goes into the municipal coffers.


I wonder how the municipal corporations of other cities in India run without Octroi/LBT?
Is this Octroi/LBT really required?


Anyway, there have been massive protests by the *SURPRISE SURPRISE* retailers! Mind you, not the consumer public, but the retailer over this.
Since I am not a retailer, and neither have I any relatives, friends etc in this business - I really need to understand what exactly is their issue behind LBT?
Why are the retailers so opposed to the LBT?

From the little reading I did about (DNA news):
Quote:
Unlike the octroi regime, trucks carrying goods will not be subjected to physical checking at check posts. But the trader himself 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.

Who is liable to pay?
Any trader with a turnover of purchases and sales is not less than Rs5000. This includes the local kirane wala and even the local pan wala.

How does it work?
All the traders will have to keep a complete list of all the goods produced with a month in a software. provided be the civic body. It will check their LBT liability.

The payment will have to made once in 40 days through online portals, cheque, demand draft, or cash through a designated bank or counters of the civic bodies.
So why is LBT being opposed?
Traders argue that with VAT in place across the country, LBT will be like double-taxation. 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.


Perhaps I am really dimwitted, (and that explains why I don't have the mettle for a retail business, or politics or ...): but I don't get it. The same people were paying the Octroi earlier ... right?
So what has changed now?

Last edited by alpha1 : 13th May 2013 at 13:12.
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Old 13th May 2013, 15:03   #2
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Default re: The LBT: Local body tax Fiasco

While I am no expert in this area, I am living in Mira Road which falls under the jurisdiction of MBMC; They had Octroi earlier and have switched on to LBT for the past 2-3 years now. I feel that LBT puts the onus on the trader to ensure that the taxes are paid in time and also holds them accountable. This means, their trading books have to be clean and fair; Under Octroi regime, we all know what the trucks carried and how much they carried and what was the Octroi collected.

Simple logic is, whenever we bring in transparency in any business model, there would be opposition.
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Old 13th May 2013, 15:08   #3
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Default re: The LBT: Local body tax Fiasco

At some point this computerised inventory means more efforts are required which means more costs. The traders say they are sceptical as it means more opportunity for the municipal authorities to fleece them by way of fines/ threats.

However, I suspect the hackles are raised because this may also mean that income/ sales tax etc. would also need to be paid at actuals.
What is being paid today is anyone's guess

Last edited by selfdrive : 13th May 2013 at 15:09.
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Old 13th May 2013, 15:57   #4
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Default re: The LBT: Local body tax Fiasco

I just do not understand. With GST (hopefully) on the cards all these local taxes Octroi, LBT or whatever will have to go! I smell a rat here.
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Old 13th May 2013, 16:01   #5
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Default re: The LBT: Local body tax Fiasco

Quote:
Originally Posted by alpha1 View Post
Perhaps I am really dimwitted, (and that explains why I don't have the mettle for a retail business, or politics or ...): but I don't get it. The same people were paying the Octroi earlier ... right?
So what has changed now?
No they were not. Trucks were stopped at border, and then the local body used to collect octroi there.
Now the entire bookkeeping has moved to trader. This means additional burden for esp the small kirana shop.
Instead of simplifying tax structure, the govt wants to complicate it because it will mean more money the indirect corruption way. More complicated laws = more change of breaking them = more chance of babus making hay
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Old 13th May 2013, 16:02   #6
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Default re: The LBT: Local body tax Fiasco

One major point traders are opposing is the random check at any shop for evaluation of stock by an muncipal inspector. By large it would increase chances for giving bribe & if they dont update there ledgers daily.

It would increase the accountability of traders towards sales tax which they dont normally contribute well.

In wakad many shops are operating without proper shop act certificate (forget TAN), now they are struggeling to get there documents correct.
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Old 13th May 2013, 16:13   #7
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Default re: The LBT: Local body tax Fiasco

The way I see it the chance for undervaluing is taken away with LBT. Today Trucks come in and a lot of the goods are undervalued either in terms of the qtty itself or the price of goods or simply let through. Besides the smaller shops do a lot of business in cash as they will continue to do so but they tend to not pay in full some of the other taxes as well by neither entering the good into the sales register nor billing it out.

LBT is a +ve step in my view (though that does not mean that corruption will disappear). But it does mean that corruption at Octroi naka's will disappear and that good will be transported faster. Also the unnecessary traffic build up at Octroi check points (where even the cars get stuck - ask those to commute to Mumbai from Mira Road or Thane or New Bombay) will stop. new avenues to corruption will come up but since this will all be computerised it will be more difficult. Also the Govt. is providing the software to maintain this so the shop keepers need not worry at some level.

-ves

It would require the shop keeper to be a bit literate and enter the sales into the computer. That will mean significant additional effort for the very small shops.

The Consumer will not really be affected as this is meant to replace the Octroi. Though many Traders are misleading end consumers into thinking that they are the ones who should protest instead of the Traders.

This is significantly also politically driven.

I don't think that LBT can be avoided and the present agitation is just adding to the loss of business.
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Old 13th May 2013, 16:33   #8
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Default re: The LBT: Local body tax Fiasco

Quote:
Originally Posted by ACM View Post
The Consumer will not really be affected as this is meant to replace the Octroi. Though many Traders are misleading end consumers into thinking that they are the ones who should protest instead of the Traders.
True. In fact I wonder how the traders can expect people to support their agitation. The traders hold common people for ransom by shutting shops and then expect the hostages to help by protesting on their behalf. There could be a better way of explaining this, but to cut a long story short it is odd to see traders trying to pass it off as a fight they are waging for consumer benefit when all they are trying to save is their own money and efforts
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Old 13th May 2013, 16:44   #9
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Default re: The LBT: Local body tax Fiasco

Quote:
Originally Posted by shabahmad View Post
One major point traders are opposing is the random check at any shop for evaluation of stock by an muncipal inspector. By large it would increase chances for giving bribe & if they dont update there ledgers daily.

It would increase the accountability of traders towards sales tax which they dont normally contribute well.

In wakad many shops are operating without proper shop act certificate (forget TAN), now they are struggeling to get there documents correct.
Yep True, so because they are already TAX Evaders they feel they may be forced to give bribes to continue the practice. They way I see it eve if corruption increases so will the collection and corruption by the traders will atleast decrease. Yep underpaying ones taxes is no different from the corruption we see at the Govt. End.

The only sad bit is that those genuinely paying all taxes will also have to put in more efforts at times.
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Old 13th May 2013, 16:46   #10
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Default Re: The LBT: Local body tax Fiasco

On a related note,looks like retailers in Mumbai are going to shut shop again from tomorrow-14th May till 22nd May.The local kirana guy in Borivli told me this.

The supermarkets in the malls are going to make some more money in the coming days!
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Old 13th May 2013, 16:53   #11
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Default Re: The LBT: Local body tax Fiasco

I feel the law is well intentioned, although implementation will open-up new avenues of corruption.

Lot of traders fly under the tax radar, this will catch them. Few years back, when our office was built, we got a surprise raid from sales/service tax people. We weren't the target. They wanted the list of all our vendors, who supplied material as well as service. Many of our vendors got into big soup as they had paid nothing in tax, ever.
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Old 13th May 2013, 18:11   #12
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Default Re: The LBT: Local body tax Fiasco

Being a salaried person paying taxes (especially income tax) on every rupee I earn I am happy with this as I hope indirectly many traders will be liable to more (rather more correct) income tax as they will have to be more transparent with LBT in place.
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Old 13th May 2013, 19:49   #13
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Default Re: The LBT: Local body tax Fiasco

Quote:
Originally Posted by alpha1 View Post
So why is LBT being opposed?
Traders argue that with VAT in place across the country, LBT will be like double-taxation. 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.
Yes, more than amount of tax (which are passed on to consumers anyway), they are worried about double book keeping and inspector-raaj.

Quote:
Originally Posted by alpha1 View Post
The same people were paying the Octroi earlier ... right?
So what has changed now?
They were paying doesn't mean they were happy about it. It's a long standing demand to simplify tax procedures and have just one tax like VAT.


I think, traders are loosing sympathy simply because their strikes are affecting common public badly.

Instead of asking why traders are opposing LBT, unfortunately nobody is asking why doesn't the Govt have a single tax. Traders are ready for a surcharge on VAT that equals or exceeds the LBT as they anyway have nothing to pay from their pocket.

The reasons given by Govt representatives on various channels on this are really lame. "VAT will be deposited to State Govt directly and that will not give the local body a steady source of income" is one of them.

Well, why can't two Govt bodies (State Govt and Municipal bodies) sort out this issue among themselves instead of forcing traders to do double book keeping and opening another area for corruption? They can give local bodies credit or whatever if cash flow is an issue.

This is just outrightly absurd argument on Govt's part.

Last edited by mayuresh : 13th May 2013 at 19:51.
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Old 14th May 2013, 10:15   #14
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Default Re: The LBT: Local body tax Fiasco

Just a disclaimer to this thread:
Quote:
Originally Posted by alpha1 View Post

I wonder how the municipal corporations of other cities in India run without Octroi/LBT?
Is this Octroi/LBT really required?
Quote:
Originally Posted by mayuresh View Post

Instead of asking why traders are opposing LBT, unfortunately nobody is asking why doesn't the Govt have a single tax. Traders are ready for a surcharge on VAT that equals or exceeds the LBT as they anyway have nothing to pay from their pocket.
I began by raising the question on practice of octroi/local body tax when no other city in India requires it to finance its working.
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Old 14th May 2013, 10:49   #15
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Default Re: The LBT: Local body tax Fiasco

Quote:
Originally Posted by ACM View Post

I don't think that LBT can be avoided and the present agitation is just adding to the loss of business.
No, having LBT, TBT, DBT etc., is rubbish. There should be one common tax. These millions of taxes are the reason it is so difficult to be an entrepreneur in India. The country should move to a single point taxation regime, with revenue sharing from taxes being done at the govt level.
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