What is local body tax? Why are traders protesting?


Local body tax is an account-based cess collection for every raw material used or imported into the city’s limits by all businesses, traders and manufacturers

Local body tax is a levy that traders will have to pay the local municipal corporation for importing goods into the state.

LBT is an account-based cess collection for every raw material used or imported into the city’s limits by all businesses, traders and manufacturers. Once implemented, LBT will replace traditional octroi collections.

At present, octroi is paid by traders every time goods enter the city. This charge is applicable in certain states and varies from state to state.

All shopkeepers, who sell goods over a certain amount, will have to pay LBT. It will range from 0% to 7% and will be computed based on a trader’s turnover.

Stringent book-keeping: A bane to traders

As per LBT rules, it will be the responsibility of traders to maintain records and pay tax.

The rule book empowers municipal officials to check any trader’s books of accounts and impose a fine up to five times the disputed amount.

Why are traders protesting?

Traders fear the imposition of LBT will result in harassment by local officials and increase in corruption. They want LBT scrapped and municipal corporations be compensated via state grants from the collection of value added tax.

However, local municipalities are not in favour as it would make them dependent on the powers to be and their expenditure would be curtailed depending on which party is at the helm in the state.

Traders see rise in compliance cost on account of record maintenance. But sources in the government disagree. They feel tax evasion under the octroi regime was simpler, hence traders are opposing LBT.

Have all municipalities in Maharashtra imposed the tax? 

Out of a total 26 corporations, 24 have switched to local body tax replacing octroi. Mumbai and Nashik are expected to do so later this year (1 October 2013).

If LBT comes into being, shopkeepers will have to pay tax using various levels. This could be over the counter at the civic body, the authorised banks, or even at the LBT portal which the municipal corporation body will put in place.


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