The Ministry of Urban Development has asked for a 25 to 30 per cent share for all urban local bodies in the state’s share of the nation-wide goods and services tax (GST), the unified tax regime that the government plans to roll out from April 2016.A submission to this effect was made before the Parliamentary select committee recently on the grounds that GST will subsume most of the revenue sources of urban local bodies, thus depleting its finances.
While GST is expected to be divided between the Centre and states based on a mutually acceptable formula, the ministry has argued that urban local bodies will have to deal with a huge fiscal gap once local body tax, octroi and other entry taxes are scrapped to make way for the new taxation system. In its presentation before the select committee — formed to study the Bill to amend the Constitution to allow introduction of GST, the ministry stated that while all cities, except Mumbai, have abolished octroi, none have found a suitable alternative.
A ministry source pointed out that octroi was a major money spinner for most municipalities and since its abolition, post the Central government’s directives, the resource mobilisation rate of local bodies all over have gone down. This is expected to be hit further with the scrapping of other municipal level taxes post implementation of GST. “In Mumbai, Rs 7,500 crore is garnered through octroi alone while the local body tax, which the state government introduced to replace octroi in rest of Maharashtra and is responsible for revenue worth Rs 6,875 crore, is set to be scrapped from August this year. Cities are engines of economic growth and a share in the GST is the only hope to shore up the finances of ULBs,” he said.
Urban development minister Venkaiah Naidu had earlier spoken in favour of an assured share for municipalities in the GST pie. Comparative figures provided by the ministry show that in cities such as Beijing, Sao Paulo, Tokyo and Argentina, 32 to 78 per cent of income tax, sales tax or value-added tax go towards municipal finance. Arguing for a statutory share for cities in GST, also known as the ‘city GST’, the ministry has said that at least 25 per cent of the state GST should go to ULBs. A High-Powered Expert Committee on Urban Infrastructure Report (2011) has recommended a share for ULBs on all taxes levied by the state on goods and services. The McKinsey Report: India’s Urban Awakening (2010), which pegs India’s spending on its cities by 2030 at Rs 97.4 lakh crore, has proposed a local body revenue share accounting for 18-20 per cent of the GST.
State FMs to meet today to discuss GST rate
The Empowered Committee of state finance ministers’ on GST is scheduled to meet on Thursday to discuss the Constitutional Amendment Bill for implementing the new indirect tax regime. Sources said that the states have studied the bill and will take a decision on the various provisions of it, which will empower the states to tax services while also giving the centre the power to tax goods beyond factory gate. ENS