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GST session: Maharashtra government passes bill that ensures compensation for civic bodies

Mumbai city news: To make up for loss of octroi, BMC’s biggest earner, government to pay civic body ₹7,200cr by July 31 next year

mumbai Updated: May 26, 2017 12:07 IST
Surendra P Gangan
Surendra P Gangan
Hindustan Times
Mumbai city news,BMC,Maharashtra GST
Chief minister Devendra Fadnavis arrives for a three-day special session of the Maharashtra Assembly in Mumbai on Saturday.(Kunal Patil/HT Photo)

A three-day special session of the state legislature began at Vidhan Bhavan on Saturday by passing the Maharashtra Goods and Services Tax (Compensation to the Local Authorities) Act 2017 to safeguard the financial interests of 27 municipal corporations in the state, including the Brihanmumbai Municipal Corporation (BMC).

The session was to discuss and ratify the Goods and Service Tax (GST) which will come in force from July 1. The GST will unify the country’s economy into a common market and eliminate a string of central and state levies. The act is significant as the BMC gets a considerable share of its revenue through octroi, which will now be scrapped with the introduction of the GST regime.

Under the regime, the states and Centre will collect identical rates of taxes on goods and services.

For example, if 18% is the GST rate on a particular good across the country, the states and the Centre will get 9% each called the CGST and SGST rates.

The state government ratified the provision of compensating the urban local bodies with an 8% compounded rise every year. The Shiv Sena-ruled BMC will get the compensation of about Rs7,200 crore for the loss of Octroi in the first year of the GST regime.

The state government has also promised it will consider the rise in the percentage of compensation every five to seven years and introduce a performance-based indicator, so that the civic bodies that have a better performance in collecting tax will get more compensation.

Ruling ally Shiv Sena had expressed apprehension about the autonomy and financial sustainability of the civic body. It had also warned to not support the GST bill if a compensation was not agreed upon. The bill passed by the assembly has the compulsion on the state government to release the compensatory funds on or before the 5th of every month.

To safeguard the financial autonomy of the BMC, the bill has also ensured the provision of the bank guarantee towards the compensation. The compensation will be based on the annual revenue of the municipal corporations from octroi and local body tax in 2016-17.

Meanwhile, the Opposition raised questions about less compensation to the civic bodies when the state government was compensated 14% by the Centre for five years. State finance minister Sudhir Mungantiwar said the compensation for civic bodies is much more than their growth rate. “The compensation given to the municipal corporations is 8% with the compounded rate when the actual growth rate of the civic bodies is just 4.5% a year. Secondly, when the centre has the made provision of the compensation only for five years, the state will compensate corporations forever,” he said.


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