Local Body Tax (LBT):

यदी आप गुगल क्रोम इस्तेमाल करते हो तो हिंदी में पढ़ने के लिये इधर क्लिक किजीये. फायर फॉक्स आय ई इस्तेमाल करते हो तो भी शायद पढ़ सकेंगे। प्रयत्न किजीये।

LBT Affected

Government does have responsibilities towards citizens. In order to fulfill responsibilities the government needs adequate funds. The government collects these funds through tax on citizens.

Responsibility of the government is divided in to 3 parts viz. Central Government, State Government and Local bodies. Central government is responsible for certain aspects of governance like foreign policy directly and other aspects like internal security through state government. Day to day problems of citizens like water supply are looked after by the local bodies (like municipality, municipal corporations etc.). All governments i.e. central, state and local bodies collect taxes from citizens at their own level. There is no systematic arrangement for collection of taxes centrally and distribution to central, state and local bodies. This has created complication for tax collectors and payers like wholesale and retail traders. This situation does warrant attention and resolve it for easy collection, control and distribution.

Octroi

Octroi had been the major source of income for all local bodies. This tax was received at the entrance to the town/city on daily basis. This system had certain advantages. Tax was collected directly by the local body and it was available to meet expenditure of the local body. This gave independence to local body from State and Central governments i.e. local body was not dependant on central/state government for funds. In other words local body could work independently. Octroi has many disadvantages too. Local body had established octroi post at every entrance of the city/town. Employees of local bodies had full control on collection of octroi. There is a well known saying that power corrupts and total power corrupts totally. Collection of octroi had been a totally corrupt system and a harassment to citizens like traders. Traders had gained confidence of employees at octroi posts/department and found a solution to reduce harassment. However this had been like walking on fire. Therefore, traders agitated for abolishing this tax totally. State government did agree to this demand however, wants similar system of tax after abolishing of octroi. This means a tax which can be collected by local body and used for governance of city/town. The state government found a solution in terms of Local Body Tax (LBT in short).

While making a legal provision for LBT the state government drafted stringent rules as if the trading community does not consists of gentlemen/gentlewomen. Local bodies were given more than needed powers and ensured that the system be the most suitable for corrupt politicians/employees/traders. Ideally there should be a single system for collection of tax. There should be an independent system for supervision and ensuring the collecting system works properly. There should be method for distribution of taxes among central, state and local body government. Local bodies need continuous cash flow for there working. The system should have inherent provision for transfer of funds from taxes collected (to the extent approved in the law) to respective local body. Central and state governments can easily find a solution and pass a law for collection of taxes at a single point by a single agency, supervising tax collection by a special agency and distribution of collected funds to central, state and local bodies. A broad outline for such a system is suggested after studying objections put forward by traders.

Traders in Maharashtra State are opposing this tax on following reasons (see their website www.abolishlbt.com). Some of the reasons are genuine and some don’t stand the test of truth.

1.     

Why there should be compulsion for registration for traders who don’t bring any article for sale from outside town/city? On face value this argument appears correct. However, why there should be objection for registration. The trader may be required to establish his/her identity in different contest and this will come handy. Traders should not oppose for registration.

2.      Trader is required to prepare bill for every transaction over Rs. 10.00 and keep his copy of bills for 10 years. Malls are also traders and bill is prepared for each and every item irrespective of cost. Some bills are for less than a rupee also. This part of the demand of traders is not valid. Second part is worth considering. Provision should be made in the law such that the bills could be handed over to the local body for safe custody every year. Local body may preserve these for whatever period of time the government wants them to preserve.

3.      Every trader is required to make a receipt for articles purchased locally and register transaction in a register maintained by the trader. This requirement doesn’t appear to create any inconvenience to trader. However checking of entry should be made responsibility of local body. If these transactions are not checked and certified the local body should be held responsible and not the trader.

4.      Even if a trader not liable to pay LBT  i.e. if nothing is purchased by the trader from any source outside the town a zero return also is compulsory. There should not be a problem in preparing zero return. However, there could be a problem in submitting such return. Local body may not accept such returns without any personal advantage to the employee concerned. This could be changed. Responsibility of collection of returns should be given to local body. Local body should make arrangement to collect and give receipt to traders at respective shop. Local body should be held responsible if return is not collected by the local body.

5.      State government has given option for payment of 2% tax on turnover between 1 to 10 lakhs. Details are not known. However, from face of it, it appears that up to 10 lakhs turnover no documents may be maintained for articles purchased from outside the town/city. This is an option. So there should be no objection for such option.

6.      Traders dealing with articles exempted from VAT and not procuring any article from outside town/city are also asked to register themselves under LBT tax. This is partial repetition of point 1 above.

7.      Traders dealing in articles exempted from VAT etc. are asked to register, maintain account file zero return every six months and preserve bills for 10 years. These are already covered under items 1, to 4 above.

8.      As per MPMC law charging LBT on the goods covered under this act is incorrect. This appears to be correct.

9.      Rate of LBT varies from town/city to town/city. This appears to be a valid point. Wherever local bodies are close to each other just because the variation in rate customer might buy from place where it is cheaper. LBT rates should be equal all over the country.

10.  Government is planning to charge LBT not only on purchase value but also incidental cost like, transport, VAT, service tax and excise duty etc. It is accepted in principle that tax on tax shall not be levied. Hence Tax should be charged on cost of the commodity only.

11.  LBT paid for articles sent outside town/city limits shall be refunded to the extent of 90% if claimed within 6 months. It is further implied that in case local body finds that LBT collected is inadequate the refund may be zero. This provision is typical English/British method prior to independence. Local body must accept such transaction and allow the refund to be adjusted against the tax being pain in a particular month.

12.  In case there is delay in payment of LBT by the trader 36% interest shall be paid by the trader to local body for the period of delay. On other hand if refund is delayed by local body only 6% interest shall be paid to trader. This provision is again English/British way practiced during rule by British. Interest rates should be reasonable. There is no need to pay interest on delay in refunding LBT to trader if provision is made as given in Para 11 above.

13.  Local body is authorised for custom inspection in the premises of the trader and seal articles etc. This provision is like giving only power without any responsibility. This should be changed by adding suitable responsibility to the local body e.g. inspectors should be totally responsible for lapses by the traders where inspectors do not bring out lapse.

14.  There is possibility of LBT being charged by different Local bodies on the same article. This is possible when there are more than 1 local bodies situated nearby. This can be avoided if wholesale trading is defined properly. A wholesaler should be 1 who procures articles from manufacturer or importer. Retailers should buy only from such wholesalers.
15.  Traders are maintaining approximately 14 different accounts and equal number of agencies verify these accounts. This is a strenuous, time consuming job and giving rise to illegal practices. This is a valid point for price control. Solution for this is a common account for all the taxes and time table for checking account. Modern technology provides a simple solution for this. The government can get software developed for maintaining account for every need felt presently and additional needs of future. A common database with independent table for each purpose can solve part of this problem. Checking part can be solved by relevant tax auditor by approaching trader as per time table fixed by association of the traders. Traders must take in to account periodicity accepted mutually and portion of the accounts to be made available to each of the auditors separately. Auditors from different tax collecting authorities should visit traders, copy relevant data, go back to office and audit. Any discrepancy in the account should be rechecked by superior auditor and confirmed discrepancy. Finally superior most local auditor should carry out check in trader’s premise and find the truth. If the discrepancy is confirmed the trader must be penalised and if the discrepancy is found incorrect the auditors should be punished. Such a system shall build faith among traders, their association, local body and the government.

         

16.  Traders have appealed to customers saying LBT is finally paid by customers and hence they should support traders. Finally traders have brought out truth that paying taxes is by customers. No trader pays tax from his profit. This gives rise to a doubt that traders are worried only because they have to work systematically and they shall not get opportunity to evade taxes.

Goods are either produced in our country or imported from outside countries. Similarly, services are obtained by needy either locally (in India) or from foreign countries. Producers and importers shall be responsible for payment of this tax. Central government should receive total tax on this account. This need not be shared with state government or local body. When goods are sold to a wholesale merchant for further distribution to retailer’s Sales tax should be charged on purchase value of goods procured from manufacturers or importers. (Note this means wholesalers shall receive goods or services directly from manufacturers and importers) This tax should be totally given to state government. Wholesalers and importers sell goods and services to retailers. Wholesalers shall be totally responsible to collect and transfer tax to local bodies where the retailer sells goods. Transferring of this tax shall be on the day of sale of the goods through e-bank transfer. Central government shall form independent departments/services for tax collection and supervision of tax collection. Supervising body must check proper collection of taxes and depositing in accounts of various governments and local bodies. Department of direct taxes must collect information from supervising body and check whether direct taxes are estimated and deposited correctly and in time.

Central and State Government, Local Body and Traders

In short, there should a single agency for collection of tax, another agency to supervise tax collection and third agency to audit work of first and second agencies. All these agencies must be created by the government and fully responsible to the government. There should be distinct area of taxation for central, state and local governments. Suggested area is production and import for Central government (excise and import duty), sale tax on wholesale sale should be reserved for State government and retailer tax on retail sales. The government in consultation with others connected should decide on implementation of the taxes. Others would have power to suggest procedure for implementation but no say in deciding on tax and its rate. Other taxes not connected with distribution of goods and services to all public also should be studied and decision taken on determining responsibilities and powers of every link in the chain.
The government should help traders by developing a system for payment by the customers. System should comprise of a machine like ATM which should accept payment from customer's bank account and transfer it to trader's bank account. The machine should be specific for every trader meaning money shall be transferred only to owner of the machine and no one else. This would avoid cash transactions and save time in maintaining account. The government would gain by right amount of tax payment.