Municipal tax sparks protest in Maharasthra upcountry

Even as the Vyapari Mahasangh (Maharashtra) was opposing Octroi (tax levied
on the entry of goods into a municipality or any other specified jurisdiction
for use, consumption or sale), the Maharashtra Government's proposal to abolish
Octroi duty in 15 D category cities municipal corporations and further replace
it by local cess (municipal tax) has not gone down well with the trade bodies
and IT associations in these cities.

The government's decision that was announced on August 26, 2009, will affect
municipal corporations including Kalyan-Dombivli, Ulhasnagar, Bhiwandi, Mira-Bhayander,
Malegaon, Sangli, Kolhapur, Solapur, Aurangabad, Nanded, Akola, Amravati,
Jalgaon, Ahmednagar and Dhule. The proposal is likely to come into effect from
April 1, 2010.

IT Associations and IT dealers across the above 15 cities have joined hands
with their respective Chamber of Commerce departments and Maharashtra Vyapari
Mahasanga to oppose the new proposal and ensure uniformity in taxation across
Maharashtra. As already reported in The DQ Week on August 10, Amravati Computer
Dealers Association (ACDA), Aurangabad IT Association and dealers in Akola had
earlier held strikes and staged protests demanding abolition of Octroi in their
respective regions.

Giving an insight into the proposed tax structure, Prakash Purohit, President
ACDA stated, “In the initial format, every time goods entered any “D” category
city of Maharashtra, a parcel checking was carried out and Octroi was levied on
the same. As dealers, we used to negotiate the Octroi amount in the absence of a
tax invoice. This process took two to three days and the material never reached
us directly. The proposed tax will see municipal corporations collect a local
cess (municipal tax) from the traders including IT channel partners.”

Purohit further elaborated that the proposed tax will make entry of goods
hassle free and the dealers can get the material directly to their offices/godowns.
However, on the flip side this will further create an imbalance in taxation
structure across Maharashtra.

“We had demanded abolition of Octroi and do not want it to be substituted by
yet another form of tax. While the government has announced its decision around
abolition of Octroi, it has not really solved our purpose. We are waiting for
the elections to get over and if the new government would also want to implement
the above tax (municipal tax).Then, ACDA and several other IT associations
across the 15 cities will look at ways to oppose it,”added Purohit.

Sharing his view on the government's decision, Atul Saha, President, Vyapari
Mahasanga Maharashtra, reiterated, “VAT was implemented in 2004 and when we
approached the government around a year back, the officials promised to abolish
Octroi. Since Maharashtra is the highest VAT collection center for the
government, abolishing Octroi would mean heavy revenue losses for the
government.”

In the 15 D category cities cities of Maharashtra, the private parties
responsible for collecting tax garner no less than Rs 500 crore (as part of
Octroi collection) on an annual basis. “We are demanding abolition of Octroi and
do not want it to be replaced by any other form of tax. In addition we want
uniformity in tax across Maharashtra. Octroi payment is resulting in heavy
losses for us as none of the industries want to enter these 15 cities of
Maharashtra. We are waiting for the assembly elections to get over and will
discuss our plan of action accordingly,” Saha quipped.

Citing an example of the nature of business loss, Purohit of ACDA elaborated,
that a city away from Amravati that has been declared Octroi free zone is bound
to attract more buyers. Hence if an IT dealer in this region does not hike the
price of the products, a customer based out of Amravati will prefer buying
products in bulk from this place rather than purchase it from within Amravati.

Yet another Sangli based dealer, Praveen Naik, Proprietor, Veetrag Computers
opined, “Instead of having this new form of tax, the government could have
thought on the lines of hiking the VAT amount by adding a surcharge on VAT. The
new form of taxation will require purchase and sale assessments to be submitted
to the municipal authorities, which is very time consuming process. Further this
may also lead to malpractices towards municipal corporations and business losses
for dealers like us.”