In Mumbai, banking activities remained paralysed and most businesses were shut, on  the second day of an indefinite strike called by over 1.5 million traders and manufacturers to protest the Maharashtra’s government’s local body tax (LBT) in lieu of octroi.

Millions of customers were inconvenienced as neighbourhood retail shops, in addition to wholesale trading in clothes, electronics, hardware, metals, cloth, foodgrains, fruits, vegetables and all types of manufacturing activities in Mumbai ground to a halt.

But what is  LBT all about?

LBT (Local Body Tax) is the tax which will be imposed by civic bodies on the entry of goods into a local area for consumption, use or sale therein.

How is it different from Octroi?

Octroi, abolished in almost all municipalities in state, is paid every time a consignment enters the city, at octroi nakas. LBT attempts to speed up the goods movement, stressing self-declaration of goods by traders who will maintain LBT accounts.

The LBT is going to replace the Octroi taxation.

Earlier, chief minister Prithviraj Chavan had announced in the assembly that introduction of LBT is likely to considerably ease traffic at all entry points in cities like Mumbai, Thane, Pune and Nagpur as trucks won’t have to halt at check posts for inspection and octroi payment.

It works differently from the octroi system. Traders have to compile a list of all goods procured within the month, feed the matter into the software provided by the civic body to check their LBT liability. They have to make payment once every 40 days using online portals, cheque, demand draft or cash through a designated bank or counters of the civic bodies.

Who will pay?

Any trader with a turnover of purchases and sales is not less than Rs 5000. This includes the local kirana wala and even the local pan wala.

Who will benefit from LBT?

LBT will be the main source of income for civic bodies. It contributes between 50-70 percent of the actual revenues of the corporation.

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.

Before the implementation of LBT, traders were importing a huge amount of goods (note here they bought goods for a low price), which allowed them to bypass taxes, store them in godowns and sell them when prices went up. But because of LBT, traders will not be able to do any of these things.

Also, because of the fact that LBT is expected to be transparent and less corrupt, the prices of goods should be more stable.

The system was implemented in some of the municipal corporations in Maharashtra like Kolhapur, Solapur and was opposed by the traders almost immediately.

Out of the 26 corporations, 24 have migrated to LBT. Mumbai and Nashik will do so later this year.