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State amends draft GST bill to compensate local bodies, Sena gives nod

Maharashtra became the first state to bring amendments in the draft GST bill to provide adequate compensation and protection to local bodies following enforcement of Goods and Services Tax from July 1,2017. The decision also means the state government will have to make financial provisions of more than Rs 15,000 crore for the local bodies.

Following the draft GST bill, Shiv Sena gave its approval to the Goods and Services Tax, after the state government promised to credit the compensation amount in the BMC account before fifth of every month. This has paved the way for smooth passage of the GST bill in the state legislature at the three-day special session from May 20 to 22. The state cabinet on Tuesday adopted the draft legislation by incorporating the compensation clause to replace the financial loss that would be incurred by the BMC and local bodies due to abolition of octroi and local body tax respectively. Late Monday night, the state government had provided a copy of the draft GST bill to Sena president Uddhav Thackeray. The Sena president gave the nod after discussing the amendments with party leaders.

Highly placed sources in the government said, “Chief Minister Devendra Fadnavis reassured Thackeray that every financial loss on account of octroi would be adequately compensated. As Mumbai was a very important economic capital, the government was equally concerned about the civic issues and responsibilities.”

It is mandatory for every state to ratify the GST after Lok Sabha and Rajya Sabha gave their approval in the Budget session. The GST will be implemented from July 1. Following abolition of octroi in BMC and local body tax in municipal councils across Maharashtra, the state government made amendments in the draft GST to make allocation of funds as compensation to the BMC and other local bodies mandatory. The GST draft states, “The state government will every month before fifth credit the amount in the accounts of BMC and local bodies.”

The total amount which the state will have to incur for local bodies is estimated at Rs 14,500 crore of which BMC will be provided Rs 7,200 crore as compensation for abolition of octroi. Every year, the amount will be increased by eight percent. The state government acknowledged that every local body and BMC would require consolidated funds for civic work in their respective cities. The implementation of GST mandating a unified tax regime makes their individual tax collections from purchase of sugarcane to entry tax on vehicles and octroi redundant.

Leader of the Opposition Radhakrishna Vikhe-Patil said, “For the last one year, we have urged the centre and the state to make provisions to compensate for the abolition of LBT and octroi.”

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