P.V.Anandpadmanabhan

The state is actively considering to abolish local body tax (LBT) and octroi in the state and replacing it with a 2.5-3% surcharge on value added tax (VAT).

Chief minister Prithviraj Chavan said at an event on Tuesday that there is a strong demand for LBT's elimination. "We have no option but to go ahead with an increased VAT. We will have to make requisite changes in the law, following which the official announcement will be made," he said. The CM noted that traders had sought a surcharge of 1% on VAT, but this could not be acceded to since it would not "cover the amount the local bodies were getting through octroi and local body tax".

LBT is the tax imposed by local municipal bodies on the entry of goods into a "local area for consumption, use or sale therein". Barring Mumbai, LBT has replaced octroi across Maharashtra. The state is projected to earn about Rs 14,000 crore through LBT in the current financial year. Its revenue from VAT, meanwhile, is reported to be close to Rs 60,000 crore.

Mohan Gurnani, president of the Federation of Associations of Maharashtra (FAM), said: “traders are ready to pay tax, but they want the system transparent.”

He added, government is also planning to come out with an alternative and we welcome the initiative. Traders are scheduled to meet on Friday to decide the future course of action.