With all the Traders jumping left right and center and making all the retailers shut shops, I noticed one thing. Its not the retailers who are protesting. It’s the wholesalers. Then started reading on it and could not stop myself asking a few questions.
LBT is described below as per my understanding. (Pls feel free to correct me if I’m wrong)
- Octroi will be abolished and LBT will be the only local tax
- Instead of stopping the goods at the entry point, the tax will be collected based on the purchase bills in the trader’s accounts
- If the goods have been brought in from outside Mumbai Region, then it will be taxed and then it will be collected.
- Tax is applicable on the purchase only and cannot be passed on to the sale.
- If some goods are purchased locally, from a seller who is not possessing a VAT still the LBT is applicable.
Fair enough. Now my questions.
- Till date, whatever we buy in Mumbai, the Octroi is loaded on us? Even if you buy a car, the price is exorbitantly high in Mumbai because of the Octroi?
- If that is the case, the trader pays the octroi, brings the car inside Mumbai, sells it to us and Recovers that Octroi Money he paid, with a little extra Profit for them by charging us.
- Let me explain you, Say the car dealer buys the car from manufacturer for 100Rs. He pays 5.5% Octroi and brings the car inside. The value including Octroi become Rs 105.5/- Now the dealer sells the car to you with 10% Margin. Now comes the game, the Margins is not calculated on the base value of the car, its calculated on the Rs 105.5/- Value, with 10% Margin, it becomes, Rs 116.05/- But still, the car is not sold to you at that price, he then loads the 5.5% Octroi back on you, making the value Rs 122.43/-
- Now the sale is done. Lets see the marging, Actual buy price of the dealer is Rs 100, He pays Rs 5.5 as the Octroi to Government. But you have paid Rs 122.43/- Where does the money go? Simple, dealer profit. Effectively dealer has made Close to 17% profit.
- In LBT, If I my understanding is correct, it is not applicable on the sale. Which makes, the sale at a price of Rs 116.05/- Including 10% Margin to the dealer. So who is beneficiary? We, We the end people.
- Till date, the dealers where making extra money in the name of Tax Reclaim, LBT nails it straight under their base. So they are revolting.
- Now why retailers are not revolting, simple logic, for them their purchase is local, where in the LBT is already paid, so no LBT applicable and when you and me buy from the retailer, it is second sales, no Tax. (VAT may still be applicable)
- So effectively, this LBT must bring down the cost of every damn thing in Mumbai. Unlike the trader’s calling that it will increase the prices which hold no fricking logic! They just dont want to give up their additional Margins.
I feel LBT will only ease a lot of things and pull down the strings a lot!
Lets see what happens.