Mumbai: Maharashtra will abolish its contentious local body tax (LBT) from 1 August, state finance minister Sudhir Mungantiwar announced on Wednesday while presenting the state budget for the 2015-16 financial year.

He presented the first budget of the Bharatiya Janata Party (BJP)-Shiv Sena government, pegging the state’s revenue deficit for 2015-16 at 3,757 crore.

The LBT was introduced in the state in April 2013, replacing octroi in all municipal corporations except Mumbai. However, traders opposed it claiming it will burden them with unnecessary paperwork and lead to harassment at the hands of municipal inspectors who may take advantage of minor errors.

In the run-up to the Lok Sabha and assembly elections last year, LBT became a major political issue and the BJP pledged to abolish it if voted to power. Postponing the implementation by five months, Mungantiwar said the abolition will take effect from 1 August.

He said the state government will have to compensate municipal corporations to the tune of 6,000 crore and to provide for this, it will have to raise value-added tax (VAT). As VAT is applicable across the state and not just in municipal corporations, the higher VAT level will be applicable in non-municipal corporation areas, too.

The budget also tried to explore non-tax avenues to increase revenue. It linked the premium charged for additional floor space index (FSI) to existing ready reckoner rates. This move is expected to increase revenue through FSI premium from around 1,800 crore per annum to 4,000 crore.

The FSI indicates permissible area of construction on any plot. The state government publishes an area-wise detailed list of property rates called a ready reckoner at the beginning of every calendar year. Ready reckoner rates are used to levy stamp duty.

In Mumbai, while the basic FSI in the city is 1.33, FSI of 1 is available in the suburbs and builders can use additional 0.33 FSI by paying a premium to the state government. The state government proposed to increase the quantity of additional FSI from 0.33 to 0.60 in the budget.

Speaking with reporters after the budget presentation, chief minister Devendra Fadnavis who holds urban development portfolio, said, “The previous Congress-Nationalist Congress (Party) artificially linked rates of premium to ready reckoner rates of 2008. This was giving windfall gains to the builder community and neither consumers were benefiting nor the state government. But by linking them to existing ready reckoner rates, we have ensured that the state government gets a share of the windfall gains made by builders."

Anuj Puri, chairman of property consultant JLL India, said, “The developers would have made the windfall gains only if they were able to sell the apartments, but considering the huge inventory of housing stock in Mumbai, they have not been able to do it. So, by linking it to current ready reckoner prices, government is only increasing the prices of housing stock in Mumbai."

The state government, however, tried to give some relief to service tax payers by announcing that VAT won’t be calculated on and above service tax. Earlier, the state government had used to levy VAT on the amount, which included basic cost of the service and service tax on it.

Mungantiwar also proposed a major change in strategy in allocations for irrigation projects. “We plan to complete 38 projects by the end of financial year 2015-16 and bring 69,000 hectares of land under irrigation. The projects which can be completed within the current financial year will be given 100% allocation, the projects which can be completed within two years will be given 50% allocation, and for projects which require more than two years, we are thinking about going for a system of deferred payment or annuity and also exploring the option of raising loans from multilateral agencies at concessional rates."

The watershed management has been another focus area for the state and it has allocated 1,930 crore, apart from providing around 7,272 crore for the irrigation sector.

Girish Kuber, editor of Marathi newspaper Loksatta, said, “When in opposition, Fadnavis used to criticise the Congress-NCP government for not showing any vision; I guess the same charge can now be levelled against his government. It is a please-all budget without any concrete road map for the future. The finance minister has proposed revenue deficit of some 3,700 crore but there is not a word in the budget about how he plans to reduce it or take the state on a path of fiscal consolidation."