Mumbai: The state government is going to place amendments in the draft goods and service tax (GST) bill in order to compensate Brihanmumbai Municipal Corporation (BMC), which will bleed losses after the implementation of the tax.

The compensation formula was decided after state finance minister Sudhir Mungantiwar met Shiv Sena chief Uddhav Thackeray at Matoshree early this month. It will cost the state treasurer Rs 15,000 crore to compensate the BMC as well as other municipalities.

Sena had objections to abolishing octroi, which is one of the major resources of the BMC. In the financial year 2016-17, the BMC had earned almost Rs 7,200 crore via octroi. This tax, however, will be abolished after GST implementation.

But, in a meeting held in Matoshree on May 9, the government presented its formula to Sena according to which, the former would compensate the BMC with an eight per cent hike every year. The base amount will be the octroi from the financial year 2016-17.

To decide this formula, the state finance ministry studied the increase in the BMC’s octroi over last ten years. It then learnt that octroi was increased by four per cent on an average over the period. The eight per cent hike was a formula floated by the state to take Sena on board for the smooth passage of GST. Sena numbers in Assembly matters for the passage of the bill as well as the survival of BJP-led state government.

The total amount that the state has to bear by this compensation formula is around Rs 15,000 crore. Generally, this amount get used for the developmental work carried out by these municipalities.

Shiv Sena leader and industry minister Subhash Desai expressed satisfaction with the new amendments in the GST bill. “Our concern was about the financial health of municipalities. They need not come begging to the state government everyday for expenses. These new provisions ensures that, and so we will support the GST bill in the House,” said Mr Desai.