Maharashtra outlines model to fund civic bodies

KOLHAPUR: Most urban local bodies in the state having local body tax (LBT) will benefit from the revenue-sharing formula finalised to compensate for the losses after the levy is scrapped from August 1. The compensation will be paid monthly and the revenue-sharing mechanism will be in place till goods and service tax (GST) is introduced.
Government officials said the highest revenue generated through octroi or LBT in the past five years will be considered as the base amount for the compensation.The rate of revenue income of the government, which is 9.67% at present, will be added in the base amount to compensate for the revenue loss after LBT is scrapped.
State finance minister Sudhir Mungantiwar told TOI over phone, “We have devised a formula that will not harm the financial autonomy of the civic bodies. The highest tax collection, either from octroi or LBT, will be selected to calculate the compensation amount.”
He added, “The compensation will be on par with the rate of state revenue generation, which is 9.67% for this fiscal. The compensation will be paid monthly to the civic bodies and revenue-sharing mechanism will be in place till goods and service tax (GST) is introduced.”
The government is set to issue detailed guidelines of the revenue-sharing formula in the next few days. In the meantime, the state government has asked the municipal corporations to submit the details of the octroi or LBT generated in the last five years.
“The compensation will be transferred directly to the accounts of the civic bodies every month and a separate permission from the state legislature is not required before the release of the grant. The huge amount spent by civic bodies’ on managing its tax affairs will be saved and can be utilised for other development purposes,” said Mungantiwar.
Considering the LBT incomes of the major civic bodies in the state, it can be concluded that except Thane Municipal Corporation (TMC), the civic bodies of Pune, Nashik, Aurgangabad and Kolhapur have shown a decline in the revenue since the year of the highest octroi/ LBT collection. The civic bodies had sought strong assurance from the state government to disburse the share on monthly basis to make up the expenses made on development work.
The Pune Municipal Corporation (PMC) generated Rs 13,015 crore in 2012-13 through octroi, which was about Rs 1,000 crore more than the LBT collection in 2014-15. The LBT was introduced in Pune in 2013 and opposition of the traders was attributed to the decline in the tax collection. On the other hand, Thane Municipal Corporation witnessed highest revenue collection last financial year.
The LBT collection of Aurangabad Municipal Corporation (AMC) dipped to Rs 170 crore last year as against the highest collection of Rs 195 crore in 2013-14. “The drop in the revenue was due to cancellation of escort tax,” an AMC official said.
The Kolhapur Municipal Corporation (KMC) has raked in Rs 100 crore from LBT in 2014-15 and has set the target of Rs 108 crore for the current fiscal. The KMC may get additional amount of Rs 2 crore. “The formula ensures that the civic body can get a certain amount. The government should ensure that the funds are transferred every month,” said KMC commissioner P Siva Sankar.
Experts claimed the revenue-sharing mechanism would decrease the civic expenses to manage the tax system. V B Kakade, head of economics department at Shivaji University, said, “Once the GST is introduced, the states will depend on the Centre for sharing revenue. Similarly, the municipal bodies will have on the state government for the funds as GST will subsume all the indirect taxes.”