Most state governments withdrew octroi about five years ago when the Value Added Tax (VAT) was introduced. However, barring a few small cities, octroi is collected in major centres of Maharashtra, such as Mumbai, Pune and Pimpri Chinchwad.
"We are working on the calculations in detail. Even if octroi is abolished, the PMC can sustain its income by imposing a local body tax (LBT). Then the PMC will have more say in taxing goods imported into the city limits. In fact, the civic body's income will multiply if the LBT is introduced," a senior octroi department official said.
The official further said that the proposal was at an initial stage and the PMC needed to take all stakeholders into confidence.
The PMC has approved an annual draft budget of Rs 3,247 crore this year, despite the municipal commissioner's warnings that the last three civic budgets had run into deficits and that the city lacked funds for infrastructure development. The octroi income target in the budget is Rs 1,253 crore, which forms 39% of the total budget income.
"The state government appears keen to abolish octroi, but the fact remains that the much-debated tax system is the backbone of many municipal corporations. The state government is likely to go for a phase-wise application to abolish octroi. We will recommend that octroi should be replaced by a cess based on the accounts of traders. So instead of collecting octroi from posts, it could be collected from traders," the official said.
Traders have repeatedly demanded that the government do away with octroi in municipal corporations as it hits their business. Trade organisations say that the VAT would compensate the civic body with the extra revenue it earns. Traders claim that the octroi system amounts to loss of fuel and time due to prolonged detention of vehicles at the check-posts.
In the face of growing clamour from the industry to abolish octroi, the state government has appointed three different committees on the matter over the last 20 years, but is yet to take a decision. With an average 53% of the income of municipal corporations coming from octroi, the state is loath to abolish it without being confident of a suitable alternative.
"The account-based cess is one of the alternatives being proposed. The latest committee, which was headed by principal secretary Subodh Kumar, had suggested a combination of capital-value based property tax, user charges, additional VAT and additional property tax," the official said.
The PMC is also looking at the experience of the Navi Mumbai Municipal Corporation, which never levied octroi and introduced the accountbased cess in 1996. The corporation has a better record compared to other civic bodies that levy octroi.