Westminster City Council says it could stop charging council tax by 2012.
The authority is "aspiring" to reach the zero charge.
Tory Councillor Kit Malthouse claims it could happen if efficiency keeps improving and the council is allowed to spend government grants as it wishes.
Currently, £40m, which equates to 5% of the London authority's £800m annual budget, is raised through the tax.
Paul Dimoldenberg, leader of the Labour opposition group, said people would end up with higher charges for pay-for services to make up the shortfall.
Mr Malthouse, deputy leader of the council, said the authority was "aspiring" to reach the zero charge but was in no way promising it.
Westminster Council Tax Bands
Band A - £403.33
Band B - £470.56
Band C - £537.78
Band D - £605.00
Band E - £739.44
Band F - £873.89
Band G - £1,008.33
Band H - £1,210.00
He made the suggestions to Westminster's 50 top managers at a conference last week.
Mr Malthouse said: "What we've done at Westminster is reduce the council tax by using more IT, doing things in a different more efficient way, and by contracting out to the private sector."
He said the government gave Westminster a certain amount of money to be spent on education alone, but the council had already invested heavily in this area and should be able to use the money as it wished.
He added 70% of Westminster's services were contracted out, saving the borough's tax payers about £500 each, every year.
But Mr Dimoldenberg told BBC News he did no think the zero rate was possible.
He said: "There's no such thing as a free lunch and if residents don't pay for it in council tax they will pay for it in other charges because there is no way the government is going to pay for everything.
"I don't know how he expects to pay for the streets to be cleaned. There's only so much you can achieve through efficiency savings.
"I am baffled by his financial take on this because he has got his statutory responsibilities and one of those is educating every school-age child in the borough."