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Compensation to Cantonment Boards for Revenue Loss on Account of GST
The introduction of the goods and services tax has resulted in a subsummation of taxes like local body tax, which used to be collected by “local authorities.” Consolidation of tax base under the GST by including various taxes of union, state and local governments resulted in a single tax base. On the consolidated tax base, both union and state governments collect GST concurrently. Since the tax base of LBT is subsumed under the GST, the demand for compensation by the local authorities (including cantonment boards) is justified. Unless there is assignment of new tax handles to local authorities, it is perpetual revenue loss for them.
The Government of India under the Gazette Notification SRO No 318 dated 29 October 1959 had given power to the cantonment boards to levy and collect octroi in their jurisdiction. The cantonment boards used to collect octroi either on their own or through the neighbouring municipal corporation. In the case of outsourcing the collection of octroi to the local municipal corporation, there was a special agreement between the cantonment boards and the municipal corporation with reference to the sharing of revenue on account of octroi collection from the jurisdiction of the board (for example, agreement between the Pune Cantonment Board [PCB] and Pune Municipal Corporation [PMC]). The local municipal corporation used to share certain tax proceeds with cantonment boards on the basis of the agreement. The agreement was void till 31 March 2013 as long as octroi was in force. However, the abolition of octroi from 1 April 2013 and the introduction of local body tax (LBT) subsequently invalidated the agreement between cantonment boards and municipal corporations. The cantonment boards, which were earlier collecting octroi on their own, continued doing so (for example, Dehuroad Cantonment Board or DCB in Maharashtra), whereas the cantonment boards that outsourced their octroi collection to local municipal corporations asked permission from the Ministry of Defence (MoD) to exercise their taxation power in the collection of LBT independently (for example, the PCB). In the case of the PCB, the MoD sanctioned the permission in 2015 and the PCB started the collection of LBT from 4 June 2015. The PCB continued the
collection of LBT till the introduction of goods and services tax (GST) on 1 July 2017. However, some cantonment boards did not either seek or receive permission from the MoD to introduce LBT (for example, the Kirkee Cantonment Board or KCB). There is no revenue sharing agreement between PMC and the two cantonment boards (PCB and KCB) from 1 April 2013.
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