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Local Body Tax Introduced in Maharashtra

13 May 2013
In a recent development intended to be a trade facilitation measure the Maharashtra Government has replaced the existing Octroi regime, which was applicable in select municipal jurisdictions, with a Local Body Tax (LBT). Taxand India takes a look at what the LBT will entail.

In principle, LBT is similar to Octori in that it is a levy on the entry of goods into areas administered by municipal corporations. However there are structural differences in terms of its coverage, manner of levy etc.

As with Octroi, LBT is imposed on the entry or 'import' of goods into municipal areas for the purpose of consumption, use, or sale, therefore the 'taxable event' under the Octroi and LBT regimes essentially continues to be the same.

However the key difference is that while Octroi is payable at the time of (physical) entry or import of goods into the municipality, LBT is payable on a monthly basis depending on the value of goods imported into the municipality, and is therefore accounting based.

This key difference is indicative of the Government's intent to liberalise trade, where the tax collection process has transitioned from a physical control to an accounting based mechanism. This is also intended to streamline supply chain bottlenecks faced by the industry at municipal entry points (which had become a common occurance) and reduce tax administration costs in the hands of the municipality.

Discover more: Introduction of Local Body Tax in Maharashtra

Your Taxand contact for further queries is:
Gokul Chaudhri
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Taxand's Take

Certain other aspects of LBT also deserve attention. For example a process for determination of disputed question (DDQ) has been introduced for approaching the authorities for a ruling on taxability or rate related aspects of import. Also rules for assessment and re-assessment have been introduced, which allow the authorities to value goods for charging LBT on items escaping assessment by comparison to the fair market value. Multinationals trading into Maharashtra should research the LBT in-depth and discover what impact, if any, it will have on their business.

Taxand's Take Author