An autonomous research institute under the Ministry of Finance


Alternatives to Octroi

Publication date

Jan, 2005


Report submitted to the Government of Punjab


O. P. Mathur


Octroi continues to be the most important source of revenue for municipalities in octroi-levying states. Accounting for anywhere between 50-70 percent of municipal revenues, octroi has provided to municipalities a degree of financial stability and security that is substantially greater than the combined value of all other sources of revenue available to them. At the same time, octroi has been identified as a levy that creates barriers to free movement of goods and services, resulting in economy-wide losses of fuel and time. Several tax experts have called it a ‘bad tax’ and argued that octroi should have no place in an economy seeking freer trade and movement of goods and services. The Governments of Karnataka, Madhya Pradesh, and more recently Uttar Pradesh, Haryana, and Rajasthan, have abolished the levy of octroi.

The issue in Punjab as in the other states is

what should octroi be replaced with? This report prepared at the instance of the Government of Punjab attempts to respond to this question. The report has made several suggestions in respect of meeting the loss that municipalities might incur in case of octroi abolition.

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