Municipal Tax System

Research Study Series No: 111

Research Study Series No: 111

Best Practices On

Property Tax Reforms In India

Submitted to

Ministry of Urban Development Government of India

National Institute of Urban Affairs I & II floor, Core 4B, India Habitat Center, Lodhi Road

New Delhi – 110003;Phone: 91-11-24643284; 24617517 www.niua.org; www.indiaurbanportal.in

March 2010

Best Practices on Property Tax Reforms in India

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PREFACE

Property tax is one of the most important sources of revenue for urban local bodies in India. The growth in revenue from this source has not been commensurate with the potential due to inadequate policies, legal problems and inefficient administration. Property tax reforms have been a matter of debate in the country for a very long time. Some cities have introduced improvements in property tax assessment and/or administration. These reforms have helped to rationalize the property tax system and increase revenues. Property Tax reform is one of the mandatory reforms under the Jawaharlal Nehru National Urban Renewal Mission. In this context, present report has reviewed recent reforms in property tax system in ten selected cities India in terms of legal/policy and management issues. The experiences can help to pave the way for improved practices and property tax revenue increase in the country. The major objective of the report has been to learn from these experiences of reforms and suggest guidelines. One of the most important findings of the study is that change in assessment system of the tax is necessary but it has to be accompanied by administrative measures to sustain improvements in the revenues overtime. We hope the report will be helpful to urban policy makers and professionals implementing property tax reforms in the country. We wish to express our sincere thanks to Dr. M. Ramchandran, Secretary (UD), Ministry of Urban Development for giving us the opportunity to work on the study.

Prof. Chetan Vaidya

Director National Institute of Urban Affairs


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ACKNOWLEDGEMENTS The report is an outcome of collective hard work of several individuals. Firstly we wish to express our sincere thanks to Ministry of Urban Development (MoUD), Government of India for supporting the study at such a right time when property tax reforms has become a mandatory reform for ULBs under JNNURM. Special thanks are due to Mr. A.K. Mehta, Joint Secretary (UD) and Ms. E.P. Nivedita, Director (UW & LSG) of MoUD for guiding the study at different stages. The study has immensely benefited from the guidance, keen interest and patience shown by Prof. Chetan Vaidya, Director, NIUA. His knowledge and expertise in this area added with the positive comments and suggestions he provided towards betterment of the report in every stage, has helped in successful completion of the project. The team is grateful to him. Dr. Mukesh P. Mathur, Professor, NIUA, who was instrumental in initiating this study, has encouraged, supported and worked with the team from the very beginning till the end. The team takes this opportunity to acknowledge his contribution. Many other individuals at NIUA have contributed positively towards the report’s completion; Mr. Sandeep Thakur for clarifying doubts related to municipal finance many a times, deserve special gratitude.

We are grateful to the Municipal Corporations for providing excellent hospitality during our visit to the cities; Officers and the concerned staff of the Revenue and PT department in the cities who have cooperated and provided their valuable time (during detailed discussions in the field visits) as well as data and information for our research (when ever required). We acknowledge with thanks the contribution of our three partners Ms. Manvita Baradi, UMC, Ahmedabad, Shri Vasanth Rao, BBMP, Bangalore and Shri Y Tripathi, KNS Institute, Patna in compilation of the three city reports of Ahmedabad, Bangalore and Patna. A very special thank you is due to Prof. O.P. Mathur, Professor, NIPFP and Shri R. M. Kapoor, Local Governance Synergy, Kolkata, both experts in this field, for patiently going through the draft report and offering valuable suggestions. We would also like to thank Shri K. Dharamrajan for his inputs on our understanding of property tax reforms, and Shri Gangadhar Jha, Advisor, IPE Pvt. Ltd, New Delhi, for his guidance during the project. Finally the report would not get completed without the immense hard work put in by the core research team members Dr. Rajesh Chandra and Shri Ajay Nigam as well as the other members. Efforts by Shri T. C. Sharma and Ms. Sangeeta Vijh towards editing and formatting the report in the final stages are also appreciated. We have all been enriched by the experiences gained and shared during this endeavor. We hope the report will contribute in some way towards implementation of property tax reforms in our country in the near future.

Dr. Debjani Ghosh

Research Coordinator & Senior Research Officer

National Institute of Urban Affairs


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Advisors

Chetan Vaidya Mukesh P. Mathur

Coordinator

Debjani Ghosh

Core Members

Rajesh Chandra

Ajay Nigam

Other Members

Naveen Mathur Nilanjana Dasgupta Sur

Satmohini Isha Srivastava Ray Preeti Chauhan Priyam Sharma

Computer Team

T. C. Sharma Indu Senan

Sangeeta Vijh

Partners

Urban Management Centre Ahmedabad Shri Vasanth Rao, Deputy Commissioner (Resources) Bangalore Bruhat Bangalore Mahanagara Palike Shri Y. Tripathy, Director Patna K. N. Sahaya Institute of Environment and Urban Development

Research Team and Partners


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Chapter I Introduction 1-7 1.1 Background 1.2 Overview of Reforms 1.3 Review of Past Efforts 1.4 Objectives of the Study 1.5 Study Methodology 1.6 Outline of the Report Chapter II Ahmedabad Municipal Corporation 8-20 2.1 City Profile 2.2 Urban Governance 2.3 Overview of Finances 2.4 Existing System 2.5 Assessment System 2.6 Billing and Collection System 2.7 Exemptions 2.8 Benefits from New System 2.9 Use of Modern Technology 2.10 PT in Newly Merged Areas 2.11 Impacts of JNNURM 2.12 Issues 2.13 Replicability and Sustainability 2.14 Lessons Learnt Chapter III Bruhat Bangalore Mahanagara Palike 21-43 3.1 Introduction 3.2 City Profile 3.3 Urban Governance 3.4 Overview of Finances 3.5 Existing System 3.6 Reforming the Property Tax System 3.7 Appraisal of the Reform 3.8 Benefits of the System 3.9 Reduction of Compliance Cost 3.10 Elasticity 3.11 Transparency 3.12 Administrative Costs 3.13 Horizontal Equity 3.14 Key Benefits and Lessons Learnt

Contents


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8.3 Overview of Finances 8.4 Property Tax System 8.5 Issues 8.6 New Assessment Mechanism 8.7 Impact of JNNURM 8.8 Initiatives/ Innovative Measures

Chapter IV Bhubaneswar Municipal Corporation 44-52 4.1 Introduction 4.2 Urban Governance 4.3 Overview of Finances 4.4 Property Tax System 4.5 Issues, Problems, Suggestions 4.6 Reform Interventions Chapter V Corporation Of Chennai 53-61 5.1 Introduction-City Profile 5.2 Urban Governance 5.3 Overview Of Finances 5.4 Importance of Property Tax on Revenue Generation 5.5 Existing Property Tax System 5.6 Benefits of New System 5.7 Impacts of JNNURM 5.8 Innovations, Replicability, Sustainability Chapter VI Greater Hyderabad Municipal Corporation 62-71 6.1 Introduction 6.2 City Profile 6.3 Urban Governance 6.4 Administrative Set Up of Property Tax Department 6.5 Overview of Finances 6.6 Demand and Collection 6.7 Property Tax System 6.8 Issues and Reforms Chapter VII Indore Municipal Corporation 72-83 7.1 Introduction 7.2 City Profile 7.3 Urban Governance 7.4 Overview of Finances 7.5 Existing Property Tax System 7.6 Benefits of New System 7.7 Impacts of JNNURM 7.8 Innovations/Replicability/Sustainability 7.9 Issues and Problems Chapter VIII Kolkata Municipal Corporation 84-968.1 Introduction 8.2 Urban Governance


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Chapter IX Ludhiana Municipal Corporation 97-104 9.1 Introduction 9.2 Urban Governance 9.3 Overview of Finances 9.4 Property Tax System 9.5 Issues and Problems 9.6 Innovative Measures 9.7 Impact of JNNURM Chapter X Patna Municipal Corporation 105-118 10.1 City Profile 10.2 Urban Governance 10.3 Overview of Finances 10.4 Property Tax System 10.5 Benefits of New System 10.6 Use of Modern Technology 10.7 Impact of JNNURM 10.8 Innovations, Replicability and Sustainability 10.9 Issues and Problems 10.10 Suggestions Chapter XI Pune Municipal Corporation 119-130 11.1 Introduction 11.2 Urban Governance 11.3 Organisational Framework of the PMC 11.4 Overview of Finances 11.5 Status of Demand and Collection 11.6 Property Tax System in PMC 11.7 Concessions/Exemptions 11.8 Issues 11.9 Reforms under JNNURM 11.10 Innovative Measures adopted for PT Collections Chapter XII Summary of Findings and Way Forward 131-151

12.1 Context 12.2 Comparison of Findings 12.3 Issues 12.4 Impact of JNNURM Reforms 12.5 Major Guidelines 12.6 Conclusions Bibliography 152-153 Annexure 154 A1 Recommendations of 13th FC on Property Tax from 13th CFC Report A2 Some Indicators of Property Tax in Selected Cities A3 Property Tax Primers, Ministry of Urban Development, GoI


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Chapter I Introduction 1-7 1.1 Cities and their Assessment Mechanisms Chapter II Ahmedabad Municipal Corporation 8-20 2.1 Reductions In The Number Of Litigation Cases 2.2 Zone wise demands during the period of 2000-02 2.3 Property Tax Collection vs Demand Chapter III Bruhat Bangalore Mahanagara Palike 21-43 3.1 Comparison of BMP and BBMP 3.2 Trend of BBMP Revenue Receipts 3.3 Trend of BBMP Revenue Expenditure 3.4 Selected Measures of Property Tax Revenue Performance 3.5 Classification of properties and rental rates: Residential Groups 3.6 Categories of Properties and Zone-Wise Rates: Non-Residential Groups3.7 Property Tax Revenue in Bangalore City Corporation Chapter IV Bhubaneswar Municipal Corporation 44-52 4.1 Overview of Income and Expenditure Profile 4.2 Summary of Revenue Account 4.3 Steps to Calculating Annual Value among Property Categories 4.4 Composition of Own Sources of Tax Revenue 4.5 Demand-Collection-Balance of Holding Tax from Government and

Private Properties 4.6 Number of Holdings Assessed Chapter V Corporation Of Chennai 53-61 5.1 Financial Statement of the Corporation of Chennai 5.2 Tax Revenue Structure of the Corporation of Chennai 5.3 Grades in Annual Values for Tax Calculation 5.4 Demand and Collection of Property Tax Chapter VI Greater Hyderabad Municipal Corporation 62-716.1 Present Scenario of Greater Hyderabad Municipal Corporation 6.2 Taxation Zones 6.3 Municipal Revenue Receipts 6.4 Demand and Collection 6.5 Composition of Property Tax 6.6 Number of Properties

List of Tables


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Chapter VII Indore Municipal Corporation 72-83 7.1 Financial Statement of the Indore Municipal Corporation 7.2 Percentage of Property tax (PT) to Own Source Revenue and Municipal

Revenue Receipts 7.3 Demand and Collection of Property Tax Chapter VIII Kolkata Municipal Corporation 84-968.1 Municipal Revenue Receipts (levied and collected) 8.2 Property Tax features 8.3 Tax Revenue Structure8.4 Demand and Collection of Property Tax Chapter IX Ludhiana Municipal Corporation 97-104 9.1 Financial Statement of the Ludhiana Municipal Corporation 9.2 Tax Revenue Structure9.3 Demand Collection Status 9.4 Selected Measures of PT Revenue Performance Chapter X Patna Municipal Corporation 105-118 10.1 Income and Expenditure 10.2 Financial Statement 10.3 Tax Revenue Structure 10.4 Structure of ARV for Tax Calculation 10.5 Demand and Collection 10.6 Circle wise number of assessed holding 10.7 Staff Deployment in Property Tax Department Chapter XI Pune Municipal Corporation 119-130 11.1 Income Statement 11.2 Details of Receipts and Expenditure 11.3 Demand and Collection 11.4 Municipal Corporation Tax Rate11.5 Number of Properties Chapter XII Summary of Findings and Guidelines 131-151 12.1 Methods of Assessment

12.2 Factors for Grouping of Properties in Selected Cities

12.3 Basic Tax Rates in Selected Cities

12.4 Status of Computerisation and GIS in Selected Cities

12.5 Status of Self-Assessment in Selected Cities

12.6 Indicators to Assess Financial Health of Selected Cities


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Chapter II Ahmedabad Municipal Corporation 8-20 2.1 Organisational Structure-Billing and Collection Chapter IV Bhubaneswar Municipal Corporation 44-52 4.1 Organisational Structure, Holding Tax Department Chapter VI Greater Hyderabad Municipal Corporation 62-71 6.1 Organisational Structure, Property Tax Department Chapter VII Indore Municipal Corporation 72-83 7.1 Organisational Structure, Property Tax Department Chapter VIII Kolkata Municipal Corporation 84-96 8.1 Organisational Structure, Property Tax Department 8.2 Calculation of Property Tax Chapter IX Ludhiana Municipal Corporation 97-104 9.1 Organisational Structure, Property Tax Department Chapter X Patna Municipal Corporation 105-118 10.1 Administrative structure Chapter XI Pune Municipal Corporation 119-130 11.1 Organisational Structure, Property Tax Department 11.2 PT System in PMC Chapter XII Summary of Findings and Guidelines 131-151 12.1 Share of Property Tax to Own Revenue Sources in Cities 12.2 Per Capita Property Tax in Cities 12.3 Share of Property Tax to Total Revenue Receipts in Cities 12.4 Share of Own Source Revenue to Total Revenue Receipts 12.5 Collection Efficiency in Cities 12.6 Per Capita Assessed Property in Cities

List of Figures


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ALV Annual Letting Value AMs Assistant Managers AMC Ahmedabad Municipal Corporation ARV Annual Ratable Value AV Annual Value ATPM Automatic Teller Payment Machine BBMP Bruhat Bangalore Mahanagara Palike BCC Bangalore City Corporation BMC Bhubaneswar Municipal Corporation BMP Bangalore Mahanagara Palike CMC City Municipal Councils CoC Corporation of Chennai CVS Capital Value Scheme DMC Deputy Municipal Commissioner GHMC Greater Hyderabad Municipal Corporation GIS Geographical Information System HC High Court IMC Indore Municipal Corporation KMC Kolkata Municipal Corporation LMC Ludhiana Municipal Corporation MoUD Ministry of Urban Development MRV Monthly Rental Value MVC Municipal Valuation Committee PMC Patna Municipal Corporation PMC Pune Municipal Corporation PT Property Tax RLV Reasonable Letting Value RWAs Residential Welfare Associations SAS Self-Assessment System SFC State Finance Commissions UAM Unit Area Method ULBs Urban Local Bodies

Abbreviations


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Executive Summary Context: Property Tax (PT) is one of the most important sources of revenue for urban local bodies in India. Theoretically, this tax should be a buoyant source of own revenue as the value of properties rise over time. Legal hurdles and poor administration have made property tax inelastic in most of the ULBs. Inability to de-link property tax from Rent Control Act had also played a crucial role in hampering this process. In this context, the MoUD issued guidelines on Property Tax in 1997. In the last 10 years, many cities in the country have introduced innovative practices in PT assessment and administration. Reform of the property tax systems is one of the mandatory reforms under the Jawaharlal Nehru Urban Renewal Mission (JNNURM). The mandate under the JNNURM as well as the Standardised Service Level Benchmarks for e-Governance in Municipalities by Ministry of Urban Development (MoUD) emphasizes the need for implementation of on-line system for property tax through a proper mapping of properties using a GIS system. This will enable the ULBs to have a full record of properties in the city and bring them under the tax net, leading to improved collections. In the long run, it will help the ULBs to move towards a more user friendly, simple and transparent property tax system. With a view to documenting the reforms taking place in some of the cities, which may be replicated a best practices, NIUA undertook the study in 10 cities, which has examined the issues causing them. Selected Cities: The study has covered 10 selected municipal corporations in the country, which are also JNNURM cities- State Capitals and Class I cities. The purpose of selecting the cities is that they are those, which have undergone or are undergoing a system and process change in property tax by highlighting the reform process. They are Ahmedabad, Bangalore, Bhubaneswar, Chennai, Hyderabad, Indore, Kolkata, Ludhiana, Patna and Pune. Assessment: Patna, Indore, Chennai, Hyderabad, Bangalore and Ahmedabad have introduced unit area assessment system using certain criteria like area, use, location, age, etc. In Ahmedabad, the tax is directly calculated based on certain criteria. Whereas in other cities, the annual value is estimated first and then the tax rate is applied to estimate the tax. Bangalore had introduced area-based system on voluntary basis and has recently taken a decision to introduce capital valuation system. Kolkata and Bhubaneswar have amended their municipal laws to introduce area-based system but have not implemented it as yet. Pune and Ludhiana continue to have the Annual Ratable Value (ARV) system of assessment. In Ahmedabad, one of the benefits after implementing the area based assessment system is that the number of litigations in the last two years has become nil due to increased level of transparency.

Contribution of PT in Revenue Generation: In terms of revenue generation, the figures are fairly self-explanatory. The collection efficiency in 6 of the 10 cities is above 70%. It is low in Indore and Patna. Poor collection in Patna could be attributed to, among others, absence of a strong and integrated database of properties, lack of an effective or committed administration, weak enforcement etc. Higher collections are also directly linked to the rate structure as applied to property categories, higher coverage of assessed


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properties, efficient monitoring and enforcement mechanism. This is seen in Bangalore, Hyderabad and Pune.

The share of property tax to own source revenue are high in cities like Bangalore, Chennai, Hyderabad, Kolkata, Bhubaneswar and Patna indicating that property tax is the primary source of revenue among tax sources while other tax and non-tax sources are low in these cities. The situation is vice-versa in cities like Ahmedabad, Ludhiana, Indore and Pune where in most cases Octroi being the primary source of revenue, property tax share becomes low. PT per capita varies between Rs. 81 to Rs. 670. It is highest in Chennai closely followed by Kolkata, Ahmedabad, Bangalore and Pune. It is the lowest in Patna and other cities with relatively low per capita tax rate are Bhubaneswar, Indore, and Ludhiana. Number of properties per 1000 population varies between 400 and 62 in the selected cities. It is the highest in Ahmedabad and the lowest in Ludhiana.

GIS and Mapping: A high quality computerized database of the properties backed by digitized mapping through GIS is seen in Ahmedabad, which tops the list for number of assessed properties per 1000 population, followed by Pune, Indore and Bhubaneswar. Bangalore and Hyderabad, in spite of being two cities who have adopted reforms and undergone system improvements to enhance revenue generation, has moderate to low assessed properties per 1000 population. Efforts for mapping properties using GIS for property tax collection has also led to one of the highest collection efficiency in the city.

Administration: Reforms are taking place in various cities but due to various local circumstances, the implementation is in various stages. The analysis in the cities has shown that there is much to learn from the good practices, which have led to visible system improvements. Bangalore has shown stark increase in percentage of property tax revenue collected, number of assessed properties and per capita tax collection after implementing area based assessment method. A high quality computerized database of the properties backed by digitized mapping through GIS is seen in Ahmedabad, which tops the list for number of assessed properties per 1000 population. Incentivising honest and timely taxpayers with rewards in Hyderabad have also made considerable difference in increased tax recovery. Pune and Chennai have undergone certain administrative reforms, which have led to efficiencies in the system. This also gets reflected in their revenue enhancement. Exemptions are very high in Indore, Ludhiana and Chennai and low in Ahmedabad, Hyderabad and Patna. Patna was the first city to introduce area-based assessment method but has not been able to sustain the revenues from this source due to poor administration. Impact of JNNURM: Various steps in the Memorandum of Agreement emphasize the need for: a) proper mapping of properties using a GIS system so that the ULB is able to have a full record of properties in the city and bring them under the tax net b) making the system capable of self-assessment (that is a system which is formula driven and where


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the property owner can calculate the tax due); c) rationalize exemptions; and d) improve collections to achieve at least 85% of demand.

Pune has introduced self-assessment system. Bhubaneswar and Kolkata have enabling provisions in the Acts to introduce SAS but have not introduced it. Ahmedabad, Hyderabad, Bangalore, Kolkata and Pune have shown advanced progress in survey and verification of properties through GIS mapping. Increase in number of assessed properties in these cities is also directly related to the survey and mapping. Collection efficiency is highest among the cities in Ahmedabad followed by Chennai, Hyderabad, Bangalore and Pune. Out of 10 cities, coverage ratio in 8 is 80% or above. Among the selected cities, Ludhiana has made least progress in introduction of PT reforms.

The study findings reveal that reforms have, to a great extent helped the cities towards system improvement in property tax. The JNNURM reform agenda has given the cities the impetus required to bring in changes, which will streamline the property tax system and strengthen the revenue base of the cities.

Way Forward

• Change in the PT assessment system is necessary but it should be accompanied by suitable administrative improvement to sustain the reforms.

• Self-assessment should be made mandatory which should be publicized through public notice etc. This will also avoid unnecessary defaults by property owners. In order to detect under assessment in declaration of area, wrong declaration in the usage of properties and wrong declaration on the type of construction, the Corporation should conduct periodic surveys, random sampling of self-assessment forms and cross checking with license data.

• Property survey, mapping and GIS should take place together as a package to ensure full coverage of properties. This should also include reassessment of under assessed properties.

• Computerisation of the property tax system (which is an important component of e-governance reform), should take place in phases beginning with issuing of demand notices, billing, collection and issuing receipts and preparing DCB statements.

• Regular revision of rates is required among all categories of properties as per the prevailing market conditions in the cities.

• Collection system can be improved by making them more users friendly. This can be done by providing payment gateways like web-based system of tax collection using online payment, banks, longer and flexible timings for collection etc.

• Tax enforcement must be a priority. The self-assessed property tax liability should be randomized for inspection. The gross negligence in not conducting verification has resulted in loss of revenue that the Corporation can ill-afford.


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1.0 Introduction

1.1 Background The process of urbanization in India has been emerging immense pressure on infrastructure and services for last many years. Most of the Urban Local Bodies (ULBs) are not able to meet the increasing demand for infrastructure and services due to their slow growth in municipal revenues. Consequent to the abolition of the Octroi in most states of India, the Property Tax (PT) has become the major source of revenue for ULBs. However, the tax yield from this source remained low because of numerous problems: administrative problems, legal issues and corrupt practices. A large number of properties in cities stay outside the tax net due to poor information base and collection efficiencies.

In view of the poor financial condition of the ULBs, it is being recognized that the PT must be made a revenue productive tax instrument through appropriate reform strategy. The last decade, especially the post 74th Constitution Amendment Act, 1992 phase has witnessed considerable interest in PT reform both from the administrative and the taxpayer’s perspectives. Many cities in the country have introduced innovative practices in various areas related to the tax administration, assessment and collection. Under JNNURM, improvement in PT is a mandatory reform. In this context, the study to document best practices on PT reforms in India has been completed.

1.2 Overview of Reforms

1.2.1 Context:

Property tax is one of the most important sources of revenue for urban local bodies (ULBs) in India. Property tax (also called general purpose tax or general tax) is a generic term, which not only include property tax but also include a variety of service taxes and cesses. Service tax includes water tax, sewerage tax, scavenging tax, drainage tax, conservancy tax, education tax, fire tax, education cess and tree cess. This PT tax structure differs from state to state in India and many states have problems related to the fixation of tax base and tax rate, tax assessment, tax collection, tax exemptions, dispute resolution etc. If assessed on the Annual Ratable Value (ARV) of land and building, it may include service taxes on water supply, drainage, street lighting etc.

The ARV system of taxation which is a rent-based rateable valuation system where the annual value or the annual rental value of the property shall be deemed to be “the gross annual rent at which the land or buildings might, at the time of assessment, be reasonably expected to be let from year to year.

Capital value reflects the market’s assessment of the income to be derived from a property in future including income generated by more intensive use of the property. The tax base comprises the assessed value of land and improvements i.e., the value at which a willing buyer and seller would agree in a free market. It follows that the capital value is extremely elastic and the property tax will have a base that will grow with the economy.



The unit area assessment (UAA) system is a simple arithmetical system of calculation of property tax based on covered area of the building and the unit area value or unit area tax for the category (of locality or amenity etc.) in which the premises is located through which it is possible for any citizen to self-assess his property tax and file his return form. (This could also be applied to vacant land)

In the unit area value system the entire city has to be grouped into somewhat homogenous categories for specifying a unit area value. Such groupings could be done taking into consideration factors like average rental value, average capital value of land, quality of physical infrastructure, availability of social and market infrastructure, type of development, economic classes of occupants etc

In principle, the base of the property tax should respond to the increasing value of properties. In practice, there is growing evidence that this tax has not been a buoyant source of revenue. The growth in revenue has not been commensurate with the potential due to inadequate policies, legal problems and inefficient administration (Vaidya.C, 2000). Property tax reforms have been a matter of debate in the country for a very long time. Some cities have introduced improvements in property tax assessment and/or administration.

1.2.2 Legal/Policy Issues:

The ARV method of assessment was one of the most prevalent systems in India. The major legal/policy problem for increasing revenues from property tax was the conflict between the provisions of Rent Control Acts and the assessment of the property tax. Since the linkage with rent control has undermined the revenue generating potential of the property tax, there was a need to de-link property tax assessment from “standard rent” concept of rent control acts. The Government of India had also issued guidelines for property tax reforms in 1997. Some states have introduced the area-based method of tax assessment. Some states like Bihar, Andhra Pradesh, Delhi, Gujarat, and Karnataka have introduced legal reforms in property tax assessment.

1.2.3 Management:

Proper management of the property tax system is as important in improving revenue generation as improving the policy and legal framework of the system. Management consists of public information, identification of properties, computerized record management and collection. Unless all of these aspects are effectively addressed, administrative reform will not necessarily produce a better property tax system with resulting revenue increases. ULBs of Chennai, Hyderabad, Bangalore, Mirzapur, Indore, and Ahmedabad have introduced management improvements in the tax.

These legal or management reforms have helped to rationalize the property tax system and increase revenues. These experiences can help to pave the way for improved practices and property tax revenue increase in the country.



1.3 Review of Past Efforts Patna was the first city where area based system was introduced. In the city, the constant harassment of house-owners and threats of arbitrary revision of tax rates led to the notification of the Assessment Rules, 1993 (Singh, 1996). These rules sought to eliminate or at least minimize the discretion of those officials concerned with tax collection, especially in matters of tax assessment. The Rules laid down certain definite criteria for assessment of the property tax, which included the particular situation of a land holding; use of the holding; and, the type of construction. The Rules were, however, challenged before the High Court (HC) by a number of concerned parties. The HC invalidated certain rules on the grounds that they violated Article 14 of the Constitution (right to equality). However, the Supreme Court struck down the HC judgment in this regard, saying that the new system was designed with “good intentions.” This particular judgment was perhaps sustained since the new rules were considered to be reasonable, simple and transparent. The question of conflict with the Rent Control Act was not tested because the court stated that this was not a matter that was argued in the lower court and, for this reason, it left this issue specifically unresolved. The total collection rose dramatically in a couple of years as people responded to the low and fair rates. But then it stagnated. Low rates did not improve matters, since compliance remained low. As a result, cases were filed in courts in vested interest (Mathur, 2004).

Hyderabad: A paper on ‘Reforming Property Tax in Hyderabad’ (Mohanty, 2002) presents a critical analysis of the property tax reforms carried out in the city. It provides a number of lessons, some of which are:

Some principles such as close involvement of tax payer, tax service linkage, incentives for filing tax returns, disincentives for non-filing, tax education etc. are important in designing of successful reforms.

Arbitrary adoption of slab rates of tax in the name of elimination of discretion in the levy of tax is not desirable;

Correction of inequities in the tax system can be an important source of enhanced mobilization of PT revenues;

Tax education and organized publicity campaigns to address the psychology of taxpayer are more important than economic factors;

Direct involvement of tax payers in the provision of civic services is a must for better tax compliance and

Tax reforms may need to be pursued in an incremental manner.

In the study, at that time the Self Assessment Scheme of Hyderabad Municipal Corporation had not yet fully realized its potential; yield from PT was improving with corrections of the 20 year old inequities taking place. The revenue from PT would go up significantly if the systematic issues were tackled rather than dealing with traditional economic aspects such as tax rate and tax base.



The paper titled “Fiscal and Distributional Implications of Property Tax Reforms in Indian Cities” by Somik V. Lall and Uwe Deichmann (2006) has examined the fiscal and distributional implication of the ongoing and potential assessment reforms in two Indian cities – Bangalore and Pune. The main finding of the paper is that reform efforts that bring assessment of the property tax base closer to market values have significant positive impacts on revenue generation, and do not have adverse consequences in terms of the tax burden faced by the poor. Further, regulations such as rent control significantly impinge on the growth of revenues from the property tax and in fact do not serve the interests of the poor. While current assessment reforms are a good first step towards increasing the performance of the property tax, structural issues such as improved valuation, increasing buoyancy of the tax, and building taxpayer confidence need to be addressed to make these reforms sustainable.

A report prepared by the ICRA Advisory Services on “Assessment of Property Tax Innovation in Ahmedabad, Bangalore, Hyderabad, and Patna”(2003) looks into the process through which innovations were adopted in four major cities- Ahmedabad, Bangalore, Hyderabad, and Patna to develop a framework for PT assessment on the basis of the lessons learnt form the innovations. Self-assessment of properties has proved to be useful to remove assessors’ discretion and independent collection mechanism of PT through banks, common utility payment centers has resulted in increased collection etc.

In case of Delhi, the positive aspects of Unit Area Method (UAM) have given a general sense of satisfaction among the tax payers, e.g considerable reduction in the rates of tax particularly for rented, newly purchased or rebuilt properties, substantial relief for disputed cases (pending for many years), simplified procedure with self-assessment and reduced specter of Inspector-Raj. People living in self-owned flats or premises will have to pay less tax under the new system while rented and commercial properties may end up paying more or as much as they are paying now. For ushering in the new system, the New Delhi Municipal Council (NDMC) has amended house tax byelaws and the new system is a modified version of the unit area method applicable to the rest of Delhi governed by MCD.

In Kolkata, the reform from existing system to the unit area based system taking place presently, needs exhaustive in house exercise as well as extensive consultative procedure at different level, collection of data from external and internal sources, analyzing the same, getting first hand experience of other Corporations and at last arrive at policy decision on the basis of consensus (KMC, 2005). A series of administrative changes, identification of properties, necessary action for broadening the tax net, better monitoring, enforcement, introduction of citizen centric system to ease the process of tax assessment and payment as well as legislative changes in the statute of related departments to catalyse the above goals are necessary.

Based on review of various studies, it is concluded that legal and policy innovations in property tax reform relate to de-linking of assessment of annual rental value from provision of standard rent as per the RCA. Specific administrative tasks to help increase revenues from the property tax include simple tax mapping, enumeration, self assessment, improved records management, simplified collection and close monitoring systems. These improvements can be introduced in a phased manner.



Reform of the property tax systems is one of the mandatory reforms under the Jawaharlal Nehru Urban Renewal Mission (JNNURM).. This will enable the ULBs to have a full record of properties in the city and bring them under the tax net, leading to improved collections. In the long run, it will help the ULBs to move towards a more user friendly, simple and transparent property tax system.

Reform of the property tax systems is one of the mandatory reforms under JNNURM as well as the Standardised Service Level Benchmarks for e-Governance in Municipalities by Ministry of Urban Development (MoUD). Both emphasize the need for a) proper mapping of properties using a GIS system so that the ULB is able to have a full record of properties in the city and bring them under the tax net b) making the system capable of self-assessment (that is a system which is formula driven and where the property owner can calculate the tax due); c) rationalise exemptions and d) improving collections to achieve at least 85% of demand.

The 13th Central Finance Commission (CFC) Report, which was released in February 2010, suggested that all local bodies should be fully enabled to levy property Tax (Annex 1). It also recommended that state governments must put in place a state level property tax board which will assist all ULBs to have an independent and transparent procedure for assessing the tax.

1.4 Objectives of the Study The present study has examined the issues reforming the property tax system in various parts of the country and has suggested guidelines based on the analysis of the present system in the cities as well the summary of issues arising from it under Property Tax reforms. The emphasis has been on the transition, capturing issues such as how the change happened and why the change was successful. Towards this end, the objectives are:

(i) To examine the current practice associated with property tax assessment, which will bring out the problems faced in the present system in the urban local body;

(ii) To analyse the process through which innovations were adopted and the impact of reform measures already put in place in selected cities; and

(ii) To develop a framework or guidelines on PT reforms which will help in ultimately strengthening the revenue base of the urban local body.

1.5 Study Methodology

In the cities selected for the research study, the property tax assessment in Ahmedabad, Bangalore, Bhubaneswar, Ludhiana and Pune is based on demand. However, the self-assessment of property tax is seen in Bangalore, Hyderabad and Pune. The property tax based on unit area is prevalent in Ahmedabad and Bangalore only. The rateable value is the base of Property Tax in Ludhiana, Hyderabad, Bhubaneswar and Pune. The information related to Property Tax in the sample cities may be seen from the table below:



Table 1.1: Cities and their Assessment Mechanism

Sl. No.

Name of the City

Method of Assessment

Basis of Determination: Frequency of revision of Guidance Value (yrs)

1 Ahmedabad Self Assessment & Demand Based

Unit Area Every 4 years (to be done annually shortly)

2 Bangalore Self Assessment & Demand Based

Unit Area* Once in 4 years

3 Bhubaneswar Demand Based ARV Not revised since initiation

4 Chennai Self Assessment Unit Area Once in 5 years 5 Hyderabad Self Assessment Unit Area Every 5 years 6 Kolkata Demand Based ARV Every 6 years 7 Indore Self Assessment Unit Area Once in 5 years 8 Ludhiana Demand Based ARV Annual 9 Patna Self Assessment Unit Area Once in 5 years 10 Pune Self Assessment &

Demand Based ARV Annual

Source: ULBs

* To be on capital valuation basis

The study is based both on primary and secondary data. Secondary data sources include Municipal Acts, Annual reports, budgets, and other related documents. Primary data sources include discussions, observations and structured questionnaire.

Based on the above objectives, the study has been conducted in the following stages:

Stage I: The collection of information has been done at various levels. Initially information has been collected from secondary sources pertaining to the subject for desk review. Following this, information pertaining to current status as well as reform measures adopted in property tax by each of the 10 sample cities has been collected through a questionnaire format sent to them. Data gaps were met by visit to cities through discussions and interviews with officials of the urban local bodies including Commissioners, Additional Commissioner /Chief Manager (Revenue), Assistant Commissioner (Finance), Chief Accounts Officers-Finance and Budget, Chief Assessor-Collector etc.

Stage II: Information collected has been analysed and the merits and demerits of pre and post reform phases have been compared and highlighted. These have been issues pertaining to statutory provisions, assessment methods, collection mechanism, administrative issues and future recourses.

Stage III: Based on summarisation of findings and conclusions drawn from Stage II, a framework / guidelines (prescriptive) on property tax reforms has been suggested as guidance for other ULBs to improve their financial base.

The study has covered 10 selected municipal corporations in the country, which are also JNNURM cities- State Capitals and Class I cities. The purpose of selecting the cities is that they



are those, which have undergone or are undergoing a system and process change in property tax all of which has ultimately enhanced revenue generation. The study has thus endeavoured to highlight the reform process and document these best practices for replication. Documentation of a best practice ideally should have elements such as situation before the initiative, challenges faced by innovators, strategy adopted, results achieved and sustainability, learning and replicability.

UN defines best practices as outstanding contributions for improving the living environment. International committee of the UN considers best practices as successful initiatives which have a demonstrable and tangible impact on improving people’s quality of life; are the result of effective partnerships between private, public and civil societies; are socially, culturally, economically and environmentally sustainable. Best Practices are promoted and used as a means of

Improving public policy based on what works;

Sharing and transferring knowledge, expertise and experience through networking and peer-to-peer learning;

The Second UN Conference on Human Settlements (Habitat II) launched the call of Best Practice as a means of identifying what works in improving living conditions on a sustainable basis.

1.6 Outline of the Report The report is initiated in the first chapter by giving a background to the property tax issue in our country. The context and need for the study and the various issues related to the property tax system have been explained subsequently. Review of past efforts traces the various studies undertaken in this area, all of which have detailed the various measures taken and to be taken by cities towards improvement in the property tax scenario. The objectives of the present study, the methodology, database and the various stages in the study complete this section.

The next section of the report details the property tax system in the 10 sample cities in ten chapters by elaborating on the present scenario, highlighting the reform measures put in place and the impact of the same on the revenue generation, achievements under JNNURM, the key benefits and the lessons learnt from it.

The final chapter details the summary of findings and the way forward to the study. The comparison of the findings, summarizing of the findings under certain common parameters and the issues arising from it has been elaborated upon after this. Impact of JNNURM reforms in the cities focuses on their status under the reform agenda. The study concludes by giving specific guidelines based on the findings and issues, which would help the ULBs to strengthen their revenue base in the long run.

2. Sewerage Tax.

3. Drainage Tax.

4. Conservancy Tax.

1. The initial drive to increase the properties in the tax neti d th t i ithi t d h

Major Reforms/ Innovative Measures

AHMEDABAD

Share of PT to own Sources (07-08)

Map

Composition of Property Tax

Share of PT to Total Rev. Rect. (07-08)

1. Water Tax.

Demand and Collection

145 00

150.00

10%84%

6%

PT Other Tax Receipts Non Tax Receipts

4%

96%

PTOther Rev. Rect. (Tot. Rev. Rect. - PT)

increased the tax revenue income within two years and hasincreased steadily since then.

3. AMC has already initiated efforts for mapping the propertiesusing GIS for property tax collection. It plans to start a fullfledged GIS powered property tax database by 2009-2010.

Growth in PT Collected Growth in Assessed Properties

4. In 2001-02 when the new area based system was introduced,the number of exempted properties came down drastically from62% to 28% and the number of litigations has become nilbecause of increased level of transparency.

2. The property tax was de-linked from the Rent Control Act,

Per Capita Property Tax

100.00

105.00

110.00

115.00

120.00

125.00

130.00

135.00

140.00

145.00

150.00

2005-06 2006-07 2007-08

128.84 130.14

136.70

Col

lect

ion

Effic

ienc

y (

%)

10%84%

6%


4%

96%


300

400

500

600

2005-06 2007-08

569.97 597.46

050

100150200250300

2005-06 2007-08

200.63

298.73

Prop

erty

Tax

(in C

rore

s)

0

5

10

15

2005-06 2007-08

10.6

14.1

Asse

ssed

Pro

pert

ie

(in

Lak

hs)



2.0 Ahmedabad Municipal Corporation

2.1 City Profile The Ahmedabad Municipal Corporation (AMC) governs the city of Ahmedabad. AMC is the seventh most populous city as per Census 2001. The AMC’s limits have expanded to almost 464 sq. kms in 2006 and the Municipal Corporation boundary houses a population of almost 50 lakh.

2.2 Urban Governance AMC was formed in 1950 under the Bombay Provincial Municipal Corporation Act. The main infrastructure services as provided under the Act include a protected water supply, sewerage and storm water drainage, the construction and maintenance of roads, street-lighting, disease prevention and monitoring, solid and liquid water disposal, public transport, and parks and gardens. The city has 54 wards and the city's Mayor is elected for a term of two-and-a-half years. AMC is divided in to 6 zones and 54 wards for better administration. Three corporators are elected from each ward, who in turn elects the Mayor. Executive powers are vested with the Municipal Commissioner, appointed by the Gujarat state government. AMC has forged partnerships with NGOs, private industry, educational institutions and international agencies for enhancing its urban development capacities and for improving municipal service delivery. The Ahmedabad Municipal Corporation has set a unique example of e-governance. The corporation has a tie-up with a private bank, which accepts tax collections from citizens through Internet. The completion and operation of the Sardar Sarovar Project of dams and canals has improved the supply of potable water and electricity for the city. In recent years, the Gujarat Government has increased investment in the modernization of the city's infrastructure, providing for the construction of larger roads and improvements to water supply, electricity and communications. The water supply needs of the city are met mainly from surface water supply through Raska Project, French well in Sabarmati River and from intake wells constructed in Sabarmati River.

2.2.1 Organisation Structure

Any change in the policy structure is always followed by some or the other change in the organisational structure for the implementation of the same. However, in the case of AMC, except for the recruitment of the Assistant Managers (AMs), at the middle level, there has been no significant change in the organisational structure for the assessment and collection of the property tax. In all, a staff of around 350, including administrative staff is active in the property tax department. The specifics are explained in subsequent chapters for assessment and collection. Also, the ward inspector who is in charge of around 5000-6000 properties, in each ward is the one point contact for property tax assessment, billing and collection in his particular ward (Figure 2.1).



Figure: 2.1 Organisational Structure-Billing and Collection, AMC

Deputy Municipal

Commissioner (Zonal Office)

Assistant Tax Collector

Deputy Assessor and Tax Collector

One for each zone

Assistant Manager (Zonal Office)

Two for each DATC

Assistant Manager (Zonal Office)

Two for each DATC

Divisional Superintendent 2-4 under each Asst.

Manager

1 ward inspector for 5000-6000

properties in each ward

1 ward inspector for 5000-6000

properties in each ward

Divisional Superintendent 2-4 under each Asst.

Manager



2.3 Overview of Finances In terms of financial health, the Ahmedabad Municipal Corporation (AMC) is considered to be one of the strongest urban local bodies in India. However, before 1993, AMC was a loss-making urban local body with accumulated cash losses of Rs. 350 million and bank overdraft to the extent of Rs 22 crore. During a deteriorating financial situation in 1994, AMC launched a major effort to strengthen its capacity to develop commercially viable projects. As a result, AMC was able to wipe off the cash losses in just five months, cleared all overdrafts, and became a surplus city by the end of 1994-95. In 1995-96 a surplus of 60 crores and in 1996-97 a surplus of 70 crores was registered by the corporation which helped in leveraging large funds, turn around its financial position and achieve a closing cash surplus of Rs. 2,142 million in March 1999.

Octroi continued to be the major source of revenues of the ULB till November 2008 when the Government of Gujarat abolished it. In this perspective, property tax becomes an extremely important source of revenue for the AMC.

2.4 Existing System

2.4.1 System before the Initiative

The AMC’s system of property tax assessment prior to 2001-02 was very complicated and in many ways irrational. Being based on notional rental value of properties, the assessed values were very low. These could not be revised due to the constraints of the Rent Control Act and related judicial decisions. Consequently, the AMC could only raise the tax rates, which stood at 73% of the annual ratable value in the case of residential properties and 83% for non-residential properties. These high rates had a psychological impact on the property owners, which lowered their willingness to pay the tax.

Another undesirable outcome of the low assessment of property values was that 72% of the total number of residential properties in Ahmedabad and 31% of the commercial properties were exempted from paying the general property tax. There was also enormous disparity between assessment of self-occupied and tenant-occupied properties. The ratio of tax burden was 1: 15 in favour of the former.

The end result of this irrational structure of the property tax system was that people perceived the system to be grossly unfair and non-transparent. It also led to corrupt practices in the tax department of AMC and the system was commonly described as “Inspector Raj”

2.4.2 Present System

Property tax is the second most important source of revenue for AMC. Especially after the elimination of octroi tax, property tax has become a very important source of revenue generation for the corporation.



In order to utilize this source to the maximum of its efficiency, AMC administration understood the deficiencies of the existing system of property taxation and replaced it with an alternative more rational system.

AMC initiated reforms in a phased manner to accommodate and minimize the legal and administrative challenges that are usually attached to reforms of this nature.

In the first phase of reforms, a number of effective steps were taken to increase property tax collection with immediate effect. First, the municipal records of properties were updated and a large number of previously unrecorded properties were added. Next, all existing properties whose assessed value was grossly inadequate were reassessed. Finally, a number of punitive actions were taken against property tax defaulters. These included disconnection of water supply and drainage services; attachment of movable and immovable properties; and occasionally auction of properties for tax recovery.

In the second phase of reforms, the AMC decided to evolve an “area-based property tax system” to replace the existing system based on annual ratable value. The groundwork for the same began in 1999. It was an elaborate exercise involving large-scale survey of properties through out the city and computerization of data. Nearly one million properties were surveyed. Corporation appointed teams of a practicing valuer and a helper who measured the property carried out this survey.

As far as the policy matters were concerned, certain amendments had to be made to the Bombay Provincial Municipal Corporation Act (applicable to Gujarat) to accommodate the new system. Also, AMC became the first Municipal Corporation in India to adopt the amendment.4

This again was a very comprehensive exercise consisting of special task group meetings, brain storming, publication of special notices and bills to the property owners, conducting hearings to receive objections, and piloting the proposed changes through the standing committee and finally seeking an approval of the state government.

The entire process was completed in about two years and the new system was introduced in the second half of 2001-02.

AMC has amended the Act instead of making a permanent change to it, which gives it an option of switching to the old rent based method as well. Thus, property tax can either be collected under Section 129 for Rateable Value based system or under Section 141B for Carpet Area based system.

4 Property Tax Reforms in Ahmedabad, PT Department, AMC



Under the new formula, the property tax is computed by applying a per unit tax rate to the total carpet area of the property and adjusting for location, age, type of use and whether the property is owner or tenant occupied.

2.5 Assessment System The new assessment mechanism was adopted in the year 1999 through the Gujarat Act 3 of 1999. All the details related to property were computerized by the AMC in the year 1994. Section. 141-B (1) of the BMPC Act, 1949 (amended in Gujarat Act 3 of 1999) provides that property tax shall be levied annually on buildings and lands on the basis of the rate per square meter of the carpet area. Multiplying factors giving weightage for:

Location :( 4 gradations based on land value)

Age :(5 gradations)

Residential Properties: Type of building (5 gradations)

Non-Residential Properties: Use of building (6 gradations)

Occupancy :( Self Owned / Tenant)

Any addition to building treated as separate unit for assessment.

Property Tax = Area X Rate X Location factor X Age factor X Type of building or use factor X Occupancy factor.

Other Rules

a) Minimum – Maximum Rates prescribed by State Govt.

Residential building: Rs.10 to Rs.40 per sq.mt. per year.

Non-Residential building: Rs.20 to Rs.80 per sq.mt. per year.

b) Minimum total Property Tax fixed by the State Govt.

Huts: Rs.84

Chawls: Rs.264

c) The Municipal Commissioner authorized to decide location factor based on land value.

d) The Municipal Commissioner’s classification cannot be challenged in Court.



Rebate Structure

a) Rebate in certain cases

20 % in case of Govt. buildings

15 % in case of non-water zone area.

20 % for Cellar and other than ground floor in case of other than residential buildings

b) Additional Rebate in case of industrial structures

15 % for buildings having Pacca Walls but non-RCC roof

25 % for buildings having enclosed shads with corrugated or iron or cement sheets with non-RCC roof.

35 % for non-enclosed buildings or sheds i.e. open shed with roof

70% for open land used for commercial or industrial purpose.

100 % for open unused land

Updation

In order for the new system to work effectively, it is very important that the property records, and other guidance values are updated at a regular interval.

a) Owing to this, the property records are updated periodically. The last update happened in the year 2004 and currently, a zone wise updating of property records is being carried out.

b) The guidance values were last revised in the year 2005 and it is decided that they would be revised every four years.

c) However, recently the Govt. of Gujarat has adopted the method of revising land value records every year. Hence, frequency of revision of guidance value would be done on annual basis. However for doing so an amendment in the provisions of the BPMC Act will be required to be carried out.5

d) AMC has town planning & development department, which sanctions plans for new building constructions as well as addition/alteration in existing buildings.

e) Moreover, town-planning department issues Building Use Permission to the new constructions. One copy of building plan approval as well as building use permission is sent to Property tax department for the purpose of assessment.

f) Change of ownership / occupation is captured whenever any amendment for taxpayer's details is applied for.

g) Also, the land values are usually identified from the “Jantri” (the year 2000) i.e. the ready reckoner used for the assessment of stamp duty on property transactions.

5 Check-list for Property Tax Reform under JNNURM prepared by AMC



h) Due to the very recent revision of “Jantri”, the new values have not been amended in the property tax bills for year 2008-2009, the new land values are expected to be used from the next billing cycle i.e. from April 2009.

2.6 Billing and Collection System The property tax bills are raised at the Head Office of AMC for all the properties and are subsequently sent to the zonal offices for collection purposes. The Deputy Municipal Commissioner (DMC) of each zone is responsible for ensuring that the tax is collected on time in each of the zones. Each zone has six collection centers where the assesses are supposed to make the payments. The Chief Assessor and Collector reports on any defaulters to the DMC of each zone who, subsequently sends notices to the defaulters and takes measures as per the provisions of the Municipal Act. Thus, disputes pertaining to the billing and collection of property taxes are resolved at the level of the zonal offices. The Ward Inspector is responsible for hand-to-hand delivery of all the property tax bills for the properties coming under his jurisdiction. Bills go out in April of each year. This is to be paid within 21 days or else 18% per annum is charged as fine. Both the tax paid and tax due details are available on the AMC website by merely entering the tenement number. Collections are largely taken care of at ward level by the Divisional superintendent and Ward Inspectors.

Mode of payment can be through

Cheque

Credit card

Bank- As an innovative approach, AMC has partnered with a private bank (Kalupur Commercial Bank), which gives the citizens an added ease and option to pay their property tax bill at the nearest branch. Thus, bills can be paid at the 24 civic centers in the city and 13 bank branches.

Internet: www.egovamc.com

Recovery measures for default / delay in payment of property tax leads to

Disconnection of water supply connection

Disconnection of sewerage connection

Sealing of property

Auction of property

2.7 Exemptions Type of Exemption Qualifying

Institution /individual

Revenue implication

of exemption

Property Tax exempted by wassigning Zero value to uproperty

Non - Residential – Religious Plasanctorum of such places of worsh

Rs. 80.60 lakhs per year



In the present property tax system exemption is not given to any type of property except religious places where property tax is exempted only for the area of sanctorum. Such properties have to pay water and sewerage charge. Thus no property is issued a bill of zero demand. Also, for closed and unused building, 3/4 property tax is exempted.

2.8 Benefits from New System The various initiatives of AMC for increasing property tax revenues have shown impressive results.

The initial drive to increase the properties in the tax net and actions against defaulters produced immediate results. The tax revenue income doubled within two years and has increased steadily since then.

Another major jump came in 2001-02 when the new area based system was introduced.

The property tax was de-linked from the Rent Control Act, which was thought by the citizens as a very complex and irrational method to calculate property tax.

Dispute of assessment was totally removed among old and new buildings.

Self-assessment is possible and hence discretion availed by lower level staff and corrupt practices can be easily curbed.

There are several tangible advantages of the new system. First being, the number of exempted properties came down drastically from 62% to 28%.

The disparity between owner-occupied and renter occupied properties also went down from 1:15 to 1:2.

In addition, there was an increased flexibility in increasing the tax rate every year.

The most impressive of all these being, the number of litigations has become nil because of increased level of transparency.

Table 2.1 Reductions In The Number Of Litigation Cases-AMC

Year 1999-00 2000-01 2001-02

Cases 42378 38500 Nil

Source: Ahmedabad Municipal Corporation

Due to rationalization of the property tax assessment system, the zone wise demand of property tax too went down with the implementation of the new system.



Table 2.2 Zone wise Demands during 2000-02-AMC (Rs in lakhs)

Name of Zone Demand of 2000-01 Demand of 2001-02

West Zone 6261.14 4498.52

East Zone 1758.70 1452.86

North Zone 1725.66 1723.15

South Zone 2547.67 2107.68

Central Zone 2865.16 2865.46

Head Office 1485.80 1577.14

Total 16644.13 14224.81


2.9 Use of Modern Technology E-governance as a tool for Self Assessment of Property Tax and an Aid in Billing and Collection has played a very important part in the success of the property tax reforms carried out by AMC and hence, it forms an integral part of the system. In order to provide a very transparent process of assessment of property tax and hence avoid any discretion and litigation, AMC provides a tool on its website. This tool helps the citizens in self-assessment of the property tax on their individual properties by plugging in very basic information. The user friendliness of the website and ease in navigation has made this a widely accepted initiative among the citizens. The following screen shots from the AMC website (www.egovamc.com) illustrate this tool. Apart from this, the citizens can also get the amount of property tax on their property assessed by going to any one of the 25 civic centers. Not only in the assessment of property tax, Egovernance also plays an important role in billing and collection of the same. The tool available on the website also helps in generating the annual bills and keeps the records of bills paid and those that are due. The use of same database throughout the entire system has also lead to increased amount of ease in data maintenance and management.

Apart from these, the AMC has already initiated efforts for mapping the properties using GIS for property tax collection. AMC plans to start a full-fledged GIS powered property tax database by 2009-2010.The city civic centers and Kalupur Bank branches spread throughout the city have gone a long way in ensuring increased convenience to the taxpayers.





2.10 PT in Newly Merged Areas For the newly merged areas into AMC in 2006, the Gujarat Municipal Finance Board already surveyed most of the properties. This was done under the initiative to implement area based property tax assessment systems in all ULBs of Gujarat. For the municipalities, wherein the survey was not conducted, AMC conducted surveys. It was decided to offer a gradual increase in property taxes to these newly merged areas. If tax calculated as per new formula was more than what the property owners were paying earlier, the owners were given an option of paying the difference over three years time period. 25% of the difference could be paid in the first and second years respectively and remaining 50% of difference could be paid in the third year.

2.11 Achievements of PT reform under JNNURM

2.11.1 Self-Assessment System (SAS)

All the records of property tax in the system have already been placed on AMC website (www.egovamc.com) where any citizen can find out details for not only his property but those of his neighbour also. AMC has also placed a ready reckoner for the calculation of property tax explaining various factor values and calculation thereof. Thus, method of tax assessment is way beyond self-assessment. It is almost an auto-assessment for any property.



2.11.2 Collection Ratio

The collection ratio for last three year (2005-06 to 2007-08) shows increase in the property tax collection after the new carpet area based method adopted by AMC. Last three years figures show that growth in property tax collection is more than 100% of the current demand and with arrears, collection efficiency is also over 70%.

Table 2.3: Property Tax Collection vs Demand-AMC

Type of Property Residential Commercial Industrial Total

* Demand Raised (In Crores)

2005-06

37.43 101.78 16.54 155.75

Demand Collected (In Crores)

2005-06

42.62 134.84 23.17 200.63

% Collected vs demand raised 113.87 132.48 140.08 128.82

*Demand Raised (In Crores)

2006-07

40.89 122.32 18.36 181.57


2006-07

49.78 158.01 28.43 236.22


*Demand Raised (In Crores)

2007-08

43.12 152.37 23.05 218.54


2007-08

51.94 215.91 30.88 298.73



*Note: It may be mentioned that only current demand has been taken into consideration and not arrears.

2.11.3 Coverage Ratio

The coverage ratio for the year 2004-05 was 44% for residential and 38% for industrial and commercial properties. AMC had anticipated the same to be around 70% in the current year.



2.12 Issues Administrative Issues: The only issue that could evolve with time is that of administering around 5000-6000 properties by a single ward inspector. Not only is he responsible for hand-to-hand delivery of the property tax bills but also examines any changes in tenants or owners of the properties. He is responsible for reporting any changes or updates regarding the property and/or tenants of his particular ward. Thus, a single inspector in charge of these many properties may give rise to productivity and effectiveness issues in a long run. Thus there is a need to increase the staff and provide training to them.

2.13 Replicability and Sustainability Many cities in India are continuing with the property tax system based on notional standard rent or ratable value of properties. They are also facing the same problem that AMC did. Based on AMC’s experience it is safe to say that the new area-based system is a very viable alternative. It has already been implemented in some other cities of Gujarat and Maharasthra State is looking at implementing the same. Kolkata Municipal Corporation has already formed a committee with Deputy Commissioner Tax for AMC as one of the team members for property tax reforms in its jurisdiction.

The prospects of sustainability are exceptionally good keeping in mind the response that the new system has received. The fact that the number of litigation against assessment has almost reduced to nil is a proof of the wide acceptability of the new system. The ease and convenience to the taxpayers is what would go a long way in making this system sustainable in a long term.

2.14 Lessons Learnt The property tax reforms at AMC show that a rational, equitable, and transparent system of property taxation can be more acceptable to taxpayers while generating higher revenues for the ULB. To administer the system, an excellent database is essential. It is very important to ensure that the taxpayers are not inconvenienced by the procedures and facilities for obtaining information or making payments. There should be clear policies and rules to deal with tax defaulters and corrupt staff and these should be strictly enforced.


1. Education Cess.


BANGALORE

Map Share of PT to Total Rev. Rect. (07-08)

2. Health Cess.

4. Libraries.

3. Beggars Cess.

Demand and CollectionMajor Reforms/ Innovative Measures

85%15%

PT Non tax Receipts

54%46%

PT Other Rev. Rect. (Tot. Rev. Rect. - PT)

Growth in PT Collected Growth in Assessed Properties Per Capita Property Tax

5. Beginning April 2000 Bangalore City Corporation introduced an optional scheme of self-assessment of property tax which was in fact the self-declaration scheme.

1. To address the low per capita revenue the Government has brought about a major amendment to bring in an area-based system of assessment with elaborate provisions in the valuation process.

2. All Propery owners experienced increase in their property tax payment which resulted in an increase in the collection rate, increase in the no. of properties added to the tax roll and an increase of tax per property.

3. To increase coverage and collection efficiency the revenue department has set a reasonable coverage and collection.4. Tax enforcement is a priority, the self-declared property tax liability should be randomized for inspection.

85%15%

PT Non tax Receipts

54%46%


0.00

200.00

400.00

600.00

800.00

2004-05 2007-08

225.13

764.74

Prop

erty

Tax

(

in

Cro

res)

0

2

4

6

8

10

2004-05 2007-08

6.2

9

Asse

ssed

Pro

pert

ie

(inLa

khs)

500510520530540550560570580590600

2004-05 2007-08

539.53

598.67

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2004-05 2005-06 2006-07 2007-08

77.33 80.63

86.75

76.10

Col

lect

ion

Effic

ienc

y (

%)



3.0 Bruhat Bangalore Mahanagara Palike

3.1 Introduction Bangalore is the capital of the State of Karnataka. Legend has it that the name Bangalore comes from the Kannada word “Benda Kaluru” (boiled beans) which were served by a humble old lady to a tired and famished King, who had lost his way. This hospitality dating back to the 10th century continued attracting people across the country to chose to make Bangalore their home. Today, with a population of nearly 75 lakh people it is fastest growing city in Asia. Known as the Silicon Valley of India because of its pre-eminent position as the nation’s leading IT employer and exporter, Bangalore has the distinction of being the first city in India to have electricity. It currently has a base of over 12,000 industrial units. With an estimated population of 75,00,000 in 2009, Bangalore is the third most populous city in India and the 28th most populous city in the world. Bangalore is one of the fastest-growing Indian metropolises after New Delhi. Between the decade 1991–2001, Bangalore registered a growth rate of 38%.

3.2 City Profile Bangalore City Corporation (BCC) as it was earlier called was established in the year 1949 by merging two municipalities, ‘The City Area’ and ‘The Cantonment Area’. At the time of creation of the Corporation the population of the city was 7.5 lakh. In the year 1991 and 1995 Bangalore Development Authority transferred some of their developed layouts to the Corporation taking its jurisdiction to 240 Square Kilometer. From 87 wards prior to 1991 the number of wards increased to 100 with the addition of new areas and the name from BCC it came to be called Bangalore Mahanagara Palike (BMP).

The jurisdiction of Bangalore was further increased in the year 2007, with the merger of neighboring 7 City Municipal Councils (CMC), one Town Municipal Council and 110 villages around Bangalore. With the addition of these periphery areas the Bangalore Mahanagara Palike came to be called Bruhat Bangalore Mahanagara Palike (BBMP) from16-01-2007. The number of wards increases from 100 to 147 wards. The State Government considered this merger of periphery areas as essential for the following reasons:

a) Improve and co-ordinate infrastructure development for road and transportation network, water supply and UGD, Solid Waste Management etc.,

b) Upgrade quality of urban civic services etc.,

c) Strengthen administrative capacity to ensure better enforcement of various rules/regulations as also better co-ordination in service delivery etc.,

d) Optimize expenditure on establishment etc.,

With the merger of the new areas the population of Bruhat Bangalore Mahanagara Palike is about 75,00,000.



Table 3.1: Comparison of BMP and BBMP

BMP BBMP

Area 226 Sq. Kms 800 Sq. kms

Population 43 lakhs 75 lakhs

Zonal Offices 3 Zones 8 Zones

Ranges 30 50

Wards 100 147

MLA Constituencies 15 28 Source: Bruhat Bangalore Mahanagara Palike

3.3 Urban Governance While the urban services are provided by a number of agencies, such as the Bangalore Sewerage and Water Supply Board (BWSSB) for the supply of potable water and sewerage treatment, Bangalore Electricity Supply Company (BESCOM) for supply of energy, Bangalore Metropolitan Transport Service (BMTC) for urban transport, BBMP is responsible for health, sanitation, town planning, licensing trade, public works, horticulture etc.

To manage these functions the Act provides for eight standing committees, of which the Standing Committee for Taxation is one.

BBMP has followed decentralized administration at the Zonal levels. A Zonal Additional/Joint Commissioner drawn from the State Administrative Services heads each of the 8 zones. Each of the Zone offices has the following departments and have their functions assigned to them within their jurisdiction:

a. General Administration

b. Revenue Department

c. Engineering Department

d. Health Department

e. Horticulture Department and

f. Education Department.

Property tax administration is decentralized with the respective zonal heads responsible to achieve the annual target of tax collection. The erstwhile 3 BMP Zones have 10 Ranges and each Range office comprising about 3-4 ward offices. The 5 New zones have 5 Range offices and each Range has about 8-9 wards.

At the Head Office the Commissioner is assisted by Heads of the Departments which correspond to the above 6 departments. Some other function like managing the BBMP property, town planning, finance, audit and resource mobilization are all centralized at the Head Office.



BBMP has involved citizen participatory approach in the work undertaken at the ward level. The city has over 600 resident welfare associations. In order to foster citizen participation in determining the priorities for Bangalore and to put the city’s developments on an over drive the Government in the year 2000 set up a Task Force called the Bangalore Agenda Task Force. This Task Force consisted of technocrats who were able to act as an interface between the citizens and the civic agencies. The object of the task force was not only to reach out to the demand side of the citizen’s concerns but from the supply side to provide the solution through the best practices anywhere in the country or world to reach out to the demand. The present Government has set up another group of people in the lines of BATF, Agenda for Bengaluru Infrastructure and Development (ABIDe) with the objective of giving the impetus to the city’s every growing infrastructure need.

3.4 Overview Of Finances With Octori being abolished in the year 1979, the main source of revenue to BBMP is the Property Tax and Grants from the State Government under the State Finance Commission recommendations. There is significant gap in the revenue receipts and revenue expenditure, which has led to severe stress on the fiscal position. Heavy debt-servicing expenditure, pay scale revisions as per the recommendations of the pay commission, and narrow tax base, are the major reasons for the continued fiscal imbalances. The Chart below shows the revenue receipt and expenditure.

Table: 3.2: Trend of BBMP Revenue Receipts (Rs in Lakhs)

Heads 2004-05 2005-06 2006-07 2008-09

Revenue from PT 22513.68 28010.39 40999.91 76474.02

Non-tax revenue 7349.47 8728.68 9062.33 13794.24

Revenue from grants 11473.29 21216.05 23059.36 49636.59

Misc Revenue 527.13 610.46 848.09 2136.07

Total 41908.57 58565.58 73969.69 142040.90 Source: Bruhat Bangalore Mahanagara Palike



Table 3.3: Trend of BBMP Revenue Expenditure (Rs. in lakhs)

Heads 2004-05 2005-06 2006-07 2008-09

Salaries & Wages 11277.92 12273.9 12373.15 16760.35

Operational & Maintenance Expenses 2176.77 2597.93 3034.42 4175.97

Debt Servicing/financial charges 3234.06 3540.44 4403.51 4175.97

Other Expenses 13839.09 20490.41 16659.64 31612.42

Revenue Expenditure 30527.80 38902.70 36470.70 58217.20

Total expenditure 82,080.00 103,540.00 114,140.00 181,709.00 Source: Bruhat Bangalore Mahanagara Palike

3.5 Existing System

3.5.1 Structure

The Legal base of property tax has been the annual rental value. It is defined as the gross annual rent at which such building or land may at the time of assessment reasonably be expected to let from month to month or from year to year less. A deduction of sixteen and two-thirds percentage of such annual rent is allowed as allowance for repair or any other account. However, in practice, the ARV is calculated for 10 months and 2 months is set off towards allowance for repair and maintenance.

In order to assess the reasonable letting value or the tax base, properties are classified into the following categories (a) rented properties, (b) owner-occupied properties, and (c) special category that are exempted from property tax.

The Act provides for a maximum tax rate of 25 percent of the ratable value. At present, residential properties are taxed at 20 percent and non-residential properties at 25 percent. In addition, all local government collect there is a 34 percent “cess” on property tax for other government departments as under:

• Education Cess 10 %

• Health Cess15 %

• Beggars Cess 3 % and

• Libraries 6%

The local government collects the cess and passes the money to the state. The local government retains a 10 percent collection fee. However, with the exception of BBMP, most local government appropriate to them the cess collected.

In case of any building of a class not ordinarily let, the gross annual rent can be estimated by the Commissioner on the rateable value of the premises at six percentage of the estimated market



value of the land at the time of assessment and estimate the cost of erecting the building at such time after for depreciation not exceeding 10% of such cost. Though this provision in effect gave a capital value method of assessing certain properties, within the ARV system, the city corporation never exercised this provision.

3.5.2 Assessment of Property

The method of assessment prescribed under section 1091 provides for the assessment of land or building or both. It also provides for classification of buildings into residential and non-residential. Though the Act provides for levy of 6 percent on the market value of the vacant land, the Corporation is not levying at this rate. Prior to year 2000-01, by an internal circular the assessors were levying tax on vacant land at the rate ranging between Rs.500-1500/- per square meter depending on whether the area was developed or not. Subsequently in the year 2001, these rates were modified under circular instructions. As per the circular vacant land were classified on the bases of the zonal classification made under the scheme of Self-assessment of Property Tax and specified the rates per square foot per month: A zone Re.0.50 B, Zone, Re. 0.40, C Zone, Re. 0.30, D Zone, Re.0.25, E Zone Re.0.20 and F Zone Re. 0.12.

When the property is assessed for the first time, the owner has to file an application furnishing the details of the property and the extent of the built up area. The tax officials inspect the premises and issue a notice determining the annual rateable value and the tax payable. If the assessee accepts the notice the tax is collected. If the assesee refutes the ARV fixed, then he can appeal before the next higher officer, the Deputy Commissioner (Revenue). If the assessee is aggrieved by the orders of the Deputy Commissioner (Revenue) he can file an appeal before the Taxation Committee for Appeal. The Order to the Committee can be appealed before the High Court.

Once the ARV is determined, the annual tax continues to be in force until revised or if there is any change in the extent of the built up area. It is the responsibility of the owner or occupier to report any changes in the built up area.

All assessed properties are recorded in the property Assessment Register maintained at the respective Range offices. This register contains detailed information about the owner(s), size of the property, location of the property, and the extent of construction, classification of the property, the usage whether owner occupied or tenanted, date when the property was first assessed, changes to the property that may have taken place after the property was first assessed. This register forms the basis for the generating the annual property tax bills.

1 The Karnataka Municipal Corporations Act 1976 has been amended introducing capital value system of assessment of property tax. This is to come into effect from 1st April 2002. Except for Bangalore and Mangalore City Corporation all the other City Municipal Corporations in the State have adopted the Capital Value method of assessment, A separate enactment has been made for Bruhat Bangalore Mahanagara Palike to adopt an area based method of assessment. This will come into force for the assessment year 2008-09



3.5.3 Billing and Collection

The property tax is payable in two installments. The first installment is due by 30th of May and the second installment by 30th October. The Rules provide for the bill collector to serve the bill on the property owners. If the tax is not paid by the due date a demand notice is served on the owner to discharge the tax due with15 days failing which recovery action will proceed. The chart I showing the demand and collection of property tax between 1995-2000 showed a negative growth rate. In order to arrest this trend, the City Corporation brought about an optional self-assessment scheme without amending the provisions of the KMC Act which measure showed that increased revenue collection. Though the reform measure ensured immediate increase in revenue, and though the demand verses collection showed efficiency, the revenue did not grow over time. The reasons for this slow down in growth rate have been discussed later.

Table 3.4(a): Bangalore Municipal Corporation: Selected Measures of Property Tax Revenue

Performance

Year Revenue Collected

Amount in Percent

Crores Increase

Assessed Properties

Number Percent

Increase

Property Tax

Collections

per property (Rs)

1995-96 49.66 … 303,393 … 1637

1996-97 60.46 21.7 338,178 11.5 1788

1997-98 85.80 41.9 353,618 4.6 2426

1998-99 98.42 14.7 380,956 7.7 2584

1999-00 118.00 19.9 388,983 2.1 3034

2000-01 157.50 33.4 404,500 4.0 3894

Source: Rao and Ravindra, 2002



Table 3.4(b): Bangalore Municipal Corporation: Selected Measures of Property Tax Revenue Performance

Year Revenue Collected Assessed properties Property tax collection

per property (Rs)

Amount in

Crs

Percent

Increase

Number Percent

Increase

2002-03 167.00 … 450743 … 3705

2003-04 195.00 16 504872 12 3862

2004-05 200.00 2.6 547354 8 3654

2005-06 230.00 15 588791 7.6 3906

2006-07 347.00 51 668535 13.5 5190

2007-08 449.00 29.3 900000 34.6 4988

Source: Bruhat Bangalore Mahanagara Palike

Table 3.4 shows that though there is an increase in the coverage the tax productivity remains low. There could be many reasons for this low performance, but discussion with the Revenue department reveals that due to lack of enforcement, the taxpayers in the subsequent years filed false returns by declaring actual tenanted property to be owner occupied and thus claimed 50 percent rebate and secondly, non-residential use was declared as residential use. The self-assessment will not succeed unless it is backed up by a strong enforcement mechanism.

3.5.4 Monitoring of Tax Collection

Each Zone maintains a demand collection and balance (DCB) register. This collection register is being computerized. The payment that is made at the Banks is reconciled with the kirdi books2. A defaulters list is prepared at the zone level and regular meetings are held to review the collection.

3.5.5 Recovery Provisions

The KMC Act has stringent recovery provisions. Rule 27 provides that if any tax is not paid within 15 days from the service of notice or bill or within 30 days after the commencement of the half year, the tax can be recovered by distrait warrant and the sale of moveable property of the defaulter or if the defaulter is the occupier of any land or building in respect of which tax is due by distress and sale of any moveable property which may be found in or such building or land which would be sufficient to cover the cost of tax, warrant fee and distrait fee. If the tax due cannot be recovered by distrait then there is a provision to prosecute the defaulter and also civil action for the recovery of tax.

2 First entry book that reflects the collection made by the tax inspector.



3.5.6 Exemptions

Section 110 contemplates a general exemption to property tax. Exemptions from the tax base are relatively few in number when compared with other States or other countries. The properties that qualify for exemptions from property tax – include charitable institutions, shelter for animals, destitute and orphanages schools for the physically challenged, & hospital, educational institution (but not residential quarters), places set up for public worship, choultries (Marriage halls) for which no rent is charged or if charged the income is exclusively utilized for charitable purposes, burial grounds, student hostels that are not established for commercial purpose, recognized educational institutions, office of the Labor Associations registered under the Trade Union Act,1926, and belongs to such Association, land and building belonging to State and Central Government other than residential quarters, land that is used for agriculture purposes in the revenue account.

Government properties: The Corporation levies property tax on State Government properties used for commercial or residential purpose. In case of Central Government properties, used for commercial or residential purpose, a service charge is levied in accordance with the Circular dated 29.3.1967 issued by the Ministry of Finance, Government of India. However, the Corporation is yet to collect tax from Central government properties.

Vacancy remission: The Act provides that if the property is vacant continuously for more than 30 days in a year, vacancy remission available to the extent of one-half for the period vacant. However, from the year 2003, this provision has been deleted.

Internal Audit of assessment files: There is no provision under the Act or administrative mechanism for a systematic auditing of the assessed cases. The normal control that is exercised when a property is registered for the first time, it passed through various levels of officers and is finally approved by the Deputy Municipal Commissioner of the zone. Though the Commissioner while delegating the powers of assessment of property tax to subordinate officers has reserved the right to re-assess cases that have been under assessed, this is not normally resorted to. The external auditors are the State Accounts Department, however the purpose of audit is merely to check the arithmetical correction of the calculations rather than the method or the assessment norm followed in the assessment.

Provision for appeal: The Act provides for an appeal mechanism against the notice of assessment. Rule 15 of the Taxation Rules provides for the property owner to file objections against the revision of property tax to the Commissioner within 7 days from the date of demand subject to the proof that the tax assessed for the previous year is paid while filing the appeal petition. A notice for personal hearing is normally sent by post to the petitioner and the outcome of the appeal petition will be communicated to the petitioner through the assessing authority.

Second appeal: Against this order of the delegated authority, the assessee if aggrieved, can file a petition before the Taxation Appeals Committee (TAC) within 15 days from the date of communication of the decision of the delegated authority. The Taxation Appeals Committee



consists of seven elected councilors of the Corporation and one among them is elected as the Chairman. A time limit of 90 days has been prescribed for the disposal of the appeal. If the order passed by the Taxation Committee is detrimental to the Corporation, the Commissioner can refer the matter to the Divisional Commissioner under rule 19 of the Taxation Rules to revise the order of the TAC. The Divisional Commissioner after giving an opportunity to the assessee, pass suitable orders, including enhancing the assessment.

Powers to revise the assessment by the Divisional Commissioner: The KMC Act also provides suo-moto powers to the Divisional Commissioner to re-assess any property if he has reasons to believe that the assessment made is erroneous or prejudicial to revenue. Such powers can be exercised after giving the assessee an opportunity of being heard. The assessee can contest the order of the Divisional Commissioner before the District Court within 30 days from the date of the decision.

3.6 Reforming the System Beginning April 2000 Bangalore City Corporation introduced an optional scheme of self-assessment of property tax. Though this scheme was called Self-Assessment Scheme, it was in effect self-declaration scheme. The scheme was made optional to avoid any legal disputes that may arise as the new scheme was brought about without amending the KMC Act. This move to make it optional also was a testing ground about the acceptability of the scheme, which had spelt out definite parameter how property would be taxed. The following were the features of the scheme or parameters for assessment:

Zoning of The City

For assessment purposes, the city was divided into six land value zones based on the published guidance value of the Department of Stamps and Registration. The zone classification referred to a land value category rather than to a contiguous area and hence, a street could fall in any zone in the municipal jurisdiction depending on the rental value assigned. The handbook brought out for the scheme had grouped streets within BMP jurisdiction into respective 6 zones. The zone classification applied to all residential properties and to one general category under non-residential property.

Category of Properties

In order to maximize the assessment value of properties, the scheme set out to make further distinction in the assessment residential and non-residential use of property. All types of residential use of property were categorized into 5 categories while non-residential uses of properties were categorized into 11 categories. The expected rents for the category of usage depending on their zone were pre-determined for rented and self-occupied properties. However, in respect of 10 non-residential uses the rental rates were fixed without reference to any zonal category. The zonal classification, the category of residential and non-residential usage of property, and the rental rates fixed per sq. ft per month were fixed as under:



Table 3.5: Self-Assessment scheme of Bangalore Mahanagara Palike: Classification of properties and

rental rates

Residential Use

Category COL 1 Cost of Construction

COL 2 Column 3 Rental Rates

Description of the property (including apartments)

Use Zone A Rs.

Zone B Rs.

Zone C Rs.

Zone D Rs.

Zone E Rs.

Zone F Rs.

I RCC or Madras terrace Buildings

More than Rs.250.00

Tenanted 5-00 4-00 3-60 3-20 2-40 2-00

Owner Occupied

2-50 2-00 1-80 1-60 1-20 1-00

II RCC or Madras terrace Buildings

More than 150/- but less than Rs.250/- per sq.ft

Tenanted 4.00 3.50 3.00 2.50 1.60 1.40 Owner Occupied

2.00 1.75 1.50 1.25 0.80 0.70

III RCC or Madras terrace Buildings

Less than Rs.150/- per sq.ft

Tenanted 3.00 2.50 2.00 1.60 1.00 0.80 Owner Occupied

1.50 1.25 1.00 0.80 0.50 0.40

IV Tiled/Sheet of all kinds.

Estimated to be less than Rs.150/-

Tenanted 4-00 3-50 3-00 2-50 1-60 1-40 Owner Occupied

2-00 1-75 1-50 1-25 0.80 0.70

V Thatched housRs.40/- per sq.ft per month with a minimum of Rs.500/-Plus Cess per property



Table 3.6: Self-Assessment scheme of Bangalore Mahanagara Palike: Classification of properties and

rental rates

Non – Residential Group – A Category

Description of property Statues

Zone A Zone B Zone C Zone D Zone E Zone F

I

All Commercial complexes, Banks, Offices, shops and commercial establishments including IT.BT other than those specifically mentioned in other categories in Annexure-II. Hotels, pub bar/restaurant and lodging homes including all clubs/Association where articles of food and /or liquor are served, petrol and diesel bunks, kerosene bunks, nurseries, granite, marble and other business even run in the open yards and any open spaces with commercial activities

Tenanted

20-00 14.00 10.00 8.00 6.00 3-00

/ Owner occupied

10-00 7.00 5.00 4-00 3-00 1-50

II

Clinics, polyclinics diagnostic centres, laboratories and other health care system/services other than nursing homes and hospitals

Tenanted 16.00 14.00 10.00 8.00 6.00 3.00

/ Owner occupied

8.00 7.00 5.00 4.00 3.00 1.50

III Exclusive sports centres including gym and physical fitness centers where articles of food and/or liquor are not served

Tenanted 12.00 10.00 8.00 6.00 4.00 2.00

/ Owner occupied

6.00 5.00 4.00 3.00 2.00 1.00

IV

Student hostel and educational institutions not covered under section 110 of the KMC Act

Tenanted 6.00 5.00 4.00 3.00 2.00 1.00

/ Owner occupied

3.00 2.50 2.00 1.50 1.00 0.50

V

Other kinds of non-residential properties not specifically included under the non-residential groups A or B mentioned here in after

Tenanted / Owner occupied

20-00 14.00 10.00 8.00 6.00 3-00

10-00 7.00 5.00 4-00 3-00 1-50




Non – Residential Group – B

Category

Description of property

Rental rates

VI Star Hotels All Star Hotels, as classified by the Ministry of Tourism, Govt. of Karnataka/Govt. of India, at the rate of Rs.(15 /- per sq. foot, irrespective of the location within the Bruhat Bangalore Mahanagara Palike

VII

Cinema Theatres (excluding Multiplexes)

Cinema theatres have been classified into 5 classes based on the quality of construction, Air-condition and other facilities provided. For sub-classification of Cinema Theatre please refer to Annexure IV

Sub Category A B C D Rate per sq. foot Rs.4-00 Rs.3.50 Rs.3-00 Rs.

2.50

Sub category E) Touring theatres and semi-permanent theatres irrespective of sub-class shall pay Rs.8,000 plus cess annually as property tax, payable in two half-yearly instalments.

VIII

Kalyana Mandapa, Shadi Mahal, Community Hall, Convention Hall, Party Hall etc. let out for marriage, reception, meetings or for any function

Kalyana Mandap etc. under this category have been classified into 5 sub-classes based on the quality of construction facilities provided all of which determine the charges for letting out the premises. Under this category, charges for hall include charges for air-conditioning, chairs, utensils, vessels, shamiana, electricity, water, fuel, interior or exterior decoration and the like but do not include any charges for food and drinks. Accordingly where the charges are:

Sub category

More than Rs.30, 000 per day

Between Rs.30, 000 and Rs.20, 001 per day

Between Rs.20, 000 and Rs.10, 001 per day

Between Rs.10, 000 and Rs.5,001 per day

Less than Rs.5, 000 per day

A B C D E Rental Rate per sq/ft Rs. 6.00 Rs. 5.00 Rs.4-00 Rs.3-00 Rs.2.50

IX

Industrial buildings (Industrial units as defined by the Director of Industries and Commerce Govt. of Karnataka or Govt. of India

They have been sub-classified as: RATE Rs. per sq. ft.

Tenanted Owner Occupied

a) Large Scale Rs. 8.00 Rs. 4-00 b) Medium scale Rs. 6.50 Rs. 3-25 c) Small Scale Rs. 5.00 Rs.3.25 d) Tiny Industry Rs. 3-00 Rs.1-50 e) Public sector Industrial buildings (State Govt. Or Central Govt. Rs. 3 per sft. irrespective of the scale of the Industry




While the zone was based on the published guidance value, the cost of construction in respect to the 3 residential used of property was based on the cost of building if constructed at the prevailing markets rates. Owner occupied residential use of property was charges half the rate fixed for tenanted property. The depreciation rate was provided under the Taxation Rules. It provided for a minimum depreciation of 10% for building that was less than 5 years old and a maximum of 70% if the age of the buildings exceeding 55 years.

The property tax payable under the self-assessment scheme is a two-line formula driven calculation depending on the location as under (for residential property):

rv = ba*(zrr*10m)-d

pt= rv*20%+34% cess (Where rv is ratable value, ba=Built-up area, zrr =zonal rental rate fixed/sft/month m=months,d= =depreciation, pt = property tax, and 20% = Tax rate).

While the same formula was applicable for non-residential properties in Group A under category I to V except the tax rate was to be calculated at 25%, in respect of usage of properties mentioned in B group the scheme offered 25% of the total built-up area as allowance for utility and such extent was subject to tax at 50% of the rate prescribed. The formula for hotels, hospitals, industries was:

rv= ba = 75 % * r X10 mts .= t1

*ba = 25 % * r/2 * 10 mts = t2

t1 + t2- d = t3

pt=t3 *25 % = pt+ 34% cess (Where rv is ratable value, ba=Built-up area, (75% area @ full rate) r= rental rate fixed/sft/month m=months, t1 = total 1 r/2 (25% area @ 50% of the rate) d=depreciation, t2=total 2, t3=total 3, pt = property tax, and 20% = Tax rate).

Rental Rate for private hospitals and nursing homes Category Rate per sq. ft. per month X

Year of commencement (Financial Year)

Sub-Category based on bed strength More than 200 beds

Between 100-199 beds

Between 50-99 beds

Between 25-49 beds

Less than 25 beds

A (Rs) B (Rs) C (Rs) D (Rs) E (Rs)

(i) 2000 and after 6.00 5.00 4.50 4-00 3.50 (ii) Between 1990 –

2000 5.00 4.50 4.00 3.50 3-00

(iii) Between 1980 – 1989

4.50 4.00 3.50 3-00 2.50

(iv) Prior to 1980 4.00 3.50 3-00 2.50 2-00



The scheme also provided for taxing land in excess of 3 times the built up area at 10 percent of the rate fixed for the category of property.

The scheme provided for deprecation for the age of the building as under:

Since the last revision was made in the year 1976, the SAS 2000 would mean a steep increase in the property tax especially for old building that were assessed under the ARV. To make the scheme acceptable and the maximum tax more predictable, the scheme contained the maximum and minimum tax payable over the tax paid in the previous year. The maximum increase was restricted to two and half times and if there was any decrease in the tax over the previous period, such decrease was restricted to the extent of 25%. The scheme also contemplates 5% scrutiny of the self-assessment declaration received. All the provisions of appeal, recovery continued to apply as per the existing provisions of the Act. The property tax handbook and return forms could be collected from any of the authorized bank and the completed returns could be filed at any of the authorized banks. BMP had opened several Payment Clinics to assist the taxpayers in filing the form and calculating their tax.

3.7 An Appraisal Of The Reform

Any tax reform should address some of the following questions:

Is the tax understandable?

Does it need to be simplified?

Does the reform measure make any sense to the taxpayer?

Does the taxpayer understand the procedure to pay the tax under the reform measures?

Is the tax reform unnecessarily complex from policy and administrative angle?

Is the tax burden distributed fairly?

Sl. No. Age of the building Depreciation in percentage

1 Up to Five years 10 2 More than five years but does not exceed Ten years 15 3 More than ten years but does not exceed fifteen years 20 4 More than fifteen years but does not exceed Twenty years 25 5 More than twenty years but does not exceed Twenty five years 30 6 More than twenty five years but does not exceed Thirty years 35 7 More than thirty years but does not exceed Thirty five years 40 8 More than thirty five years but does not exceed forty years 45 9 More than forty years but does not exceed forty five years 50 10 More than forty five years but does not exceed fifty years 55 11 More than fifty years but does not exceed fifty five years 60 12 More than fifty five years and above 70



The self-assessment scheme (SAS) of Bangalore City Corporation, introduced in April 2000, represented a radical departure from the last 27 years of tax administration. The earlier method of assessment was arbitrary and was at the discretion of the tax official. There were no guidelines issued in how the property was to be assessed. This resulted in official discretion, which was not always fair thus leading to citizen dissatisfaction and also leakage of revenue to the Corporation. Thus when the SAS was introduced there was great expectation that finally a guidelines is being issued in how the property would be assessed and that such an assessment would be transparent and simple to understand. In keep with this expectation the City Corporation brought out a Handbook containing the details of the scheme. The SAS handbook was designed to disseminate information and enable taxpayers to calculate the tax in simple steps by step manner and with working examples. It was marketed as an optional and non-discretionary scheme and that the tax assessed would be in force for the next five years. The scheme was also politically sensitive. Property tax increase was capped at two and half times the existing tax liability. It was also sensitive to the need for popular support for these changes. An influential private sector group set up by the government, the Bangalore Agenda Task Force, pushed the scheme as a good governance measure. It also encouraged Resident Welfare Association to assist in the implementation of the scheme. Education was an important part of the marketing plan, and city officials met with various interest groups to convince them that the benefits far outweighed any increase in tax.

The Bangalore Tax reform on the whole addresses these issues fairly well. For the first time the taxpayers were informed how they would be taxed and the handbook with worked examples explained all the details of the new scheme. Normally, to bring in such a sweeping reform would require an amendment of the respective provisions under the Act, however sensing that an amendment would take minimum of two years, the scheme was made optional. This was possible to do because Sub clause (a) of Sub-section (2) of Section 109 provided for a method of assessment whereby the Commissioner could fix the rental value of a property in circumstances where it was difficult to fix the rental rates. Taking advantage of this provision, the scheme offered uniform rate for properties falling under a particular zone and for a particular usage, with 50 percent rebate for owner occupied property. While pushing ahead the self-assessment and revaluation processes was also politically sensitive. A cap on the property tax increase was set at 2.5 times the existing tax liability. This provided certainty to the scheme. About two-thirds of all taxpayers reached this cap.

The Corporation was also sensitive to the need for popular support for these changes. An influential private sector group was pushing this reform in the name of good governance. An education program was part of the marketing plan for this reform. City officials met with various interest groups to convince them that the benefits of this program would outweigh the increase in their tax. The following are some of the steps that helped in gaining acceptance:



MARKETING SAS 2000 Marketing SAS involved using multiple channels over a two-month period between April and May 2000. • Distinct identity - Swayam Ghoshane (self-assessment) was the chosen logo, and it was designed to denote citizen control over property. • Informative brochures were printed not only in English and Kannada, but also in many other regional languages in a simple question-and-answer format. • Meetings with Resident Welfare Associations & Trade bodies: More than 75 meetings with resident associations and civil society organizations, and more than 30 meetings with industry and trade chambers, commercial establishment associations, hoteliers, hospitals, and other entities were held to explain the features of the new scheme. • Information through Press Media: Reader queries were invited and answered through a column in The Times of India (the leading newspaper) during the roll out. More than 2,500 letters, faxes, and e-mails were received and answered pertaining to almost every aspect of the scheme. The unique media-civic body initiative was unparalleled in the history of the country. It ran continuously for 45 days until the scheme officially closed. • Tax payments tend to be done over the last two to three days, so count down advertisement were issued during the last few days to ensure that people filed their returns. Endorsement by prominent and influential citizens was part of the advertisement strategy. • More than 30 payment clinics were opened at strategic city centers to help citizens

3.8 Benefits Of The New System

The division of the city into zones was in effect to revalue properties on an annual rental base, but used an approach that features assessment under a capital value system. This revaluation based on zonal classification itself would help in the buoyancy of property tax overtime provided in the next property tax revision the classification of zones followed the revised guidance value of the Department of Stamps and Registration at the time of the next revision. If the next revision followed the revised guidance value then several properties in the lower end of the zones fixed during SAS 2000 would move upwards to higher zones in the next revision and thus ensure the buoyancy of tax. In all the City Corporations in the country who have shifted to an area-based system of property tax, there has not been even a single instance of revision of the values. The reasons why it is difficult to revise is discussed in the next section, however, in the case of Bangalore there is an Ordinance issued by the Government to revise the tax roles and if it actually happens it would open up exciting research opportunity.



Another notable feature brought out by most of the cities is self-assessment of filing of tax returns, by which the taxpayer could file a return of property tax based on the norms specified in the application form. Though the filing tax return was called as ‘self-assessment,’ in actual practice, it is not self-assessment, as the property owner did not declare any unit value for the land or the building. The property owner report the pre-determined rates applicable to the location of their property, classification of their structure, age of the building and its usage. The objective of the SAS was simple and straightforward - to get property owners to voluntarily declare their property tax liability and to make timely payment. The ‘inducements’ are to free property tax payers from the usual complaint of official harassment and thus lower the compliance costs as the self-assessment distanced the taxpayer and the tax collector and thus eliminated scope of any official harassment.

Collection Ratio

The success of any scheme or policy can be judged from different ways. In respect of a tax policy reform the most obvious method to evaluate the success is the revenue yield. In fact, the first year of experience with the new property tax system showed an increase in revenue by 33 percent between fiscal year 2000 and fiscal year 2001. This was the result of several factors: An increase in the collection rate, increase in the number of properties added to the tax roll, and an increase of tax per property. About one-third of the revenue increase was due to revision in value and that about three-fourths of all property owners experienced increases in their property tax payment. Relatively little was due to collection of arrears. Despite the increase in collection, there is hard evidence that show that the coverage is pretty low. A study of 1996 data was carried out to determine the extent to which properties in the newly added suburban areas were brought on to the property tax roll. This study compared records of the Karnataka Power transmission company and the property tax. It revealed that of 3,765 power users surveyed, only 600 were enumerated on the property tax register. In other words, only about 30 percent of the newly added properties were on the tax roll (reported in Ravindra and Rao, 2002).

3.9 Reduction Of Compliance Cost Another success of the reform is a reduction in compliance costs. The compliance costs are high because until the SAS norms were published, other than the tax official, the taxpayer did not know the basis for the property tax. The stories of the corporation official harassment may be blown out of proportion at times, however it is not uncommon for a taxpayer to ‘negotiate’ the property tax liability. The Reforms clearly brought out that the taxpayers were willing to pay more under the new system to eliminate this contact with officials. The fact that many taxpayers paid 2.5 times more than the previous tax paid, confirms the proposition as the new tax system strengthen public confidence in the reform process. In his unpublished paper on Bangalore Property Tax, Roy Bahl examined the outcomes and the concerns that remain and summarized thus:

Been successful in the short run.

Revenues have been significantly increased.

The reforms have addressed the problem of a badly outdated valuation roll, and the taxpayer resistance to updating this roll.



It also has laid the groundwork for changing to a capital value system by establishing an index value system that uses methods akin to those used in establishing the market value of properties.

While the reforms have positive vibrations and that the reform process has begun there are several concerns that are required to sustain the reform process such as:

the long run revenue elasticity of the “self-assessment” system,

the transparency of the system,

the administrative costs of maintaining this system,

horizontal equity.

3.10 Elasticity The buoyancy of Property tax is dependent on (a) addition of new properties (b) updating the values of existing properties (c) increasing the collection rate, or (d) raising the tax rate. All require the taxing government to take some administrative or legal action. The chart below will show that over time the tax has not been growing. In fact there was almost no growth the following two years after the reforms. This cannot be attributed as reform fatigue. The discussions with the revenue staff reveals that there was complete laxity in enforcement and secondly, several new properties were not brought to tax net as the tax administration expected all owners of new property would come voluntarily and file their returns and pay their taxes. This did not happen nor was there any communication that it was obligatory for the new properties to file their returns. The fluctuations in the growth rate between 2000-01 and 2005-06 bears some testimony that only when there were some affirmative action like enforcement and coverage of new property undertaken by revenue department, those period saw some growth in revenue.

Table3.7: Property Tax Revenue in Bangalore City Corporation (Rs in Million)

Under Annual Rental Value Under Area-based assessment Year Revenue Growth

rate (%) Year Revenue Growth rate

(%) 1995-96 490.00 2000-01 1570.00 33.05 1996-97 600.00 22.45 2001-02 1630.00 3.82 1997-98 850.00 41.67 2002-03 1670.00 2.45 1998-99 980.00 15.29 2003-04 1950.00 16.77 1999-00 1180.00 20.41 2004-05 2000.00 2.56 2005-06 2300.00 15.00


Though the scheme mentioned that the SAS scheme would continue till 2005, there is no mention how the next revision would be made. However, in the interim period, in the year 2003 the KMC Act has been amended to bring in assessment of property on a Capital Value scheme/method (CVS) of for all city corporations. While most of the city corporations have implemented the



capital value method, Bangalore and Mangalore City Municipal Corporations are yet to introduce the CVS.

Despite Bangalore’s high collection efficiency, perhaps the highest in the country, Bangalore per capita property collection is perhaps the lowest in the country. Given the city’s potential, there is a good case for the city to revise the tax rolls and increase the coverage to answer the low per capita revenue.

To address the low per capita revenue Bangalore Mahanagara Palike City attempted the second level of reform by introducing the CVS. But there were huge protest from the taxpayers and the government was forced to direct the Corporation to withhold its implementation. The taxpayers were used to the area based rental method of assessment and thus resisted the property tax on the basis of published market value of land and building. The general perception was that the tax would go up if the property were valued under the CVS. There was complete failure on the part of the Corporation to communicate to the taxpayer that the taxes need not necessarily go up under the CVS as the increase could be calibrated by the tax rate. Having failed to do so and having allowed the protest to snowball into major controversy, it is doubtful if CVS can ever be introduced in Bangalore. The Government has brought about a major amendment to bring in an area-based system of assessment with elaborate provisions in the valuation process. If the City Corporation is able to re-value and reclassify the zones as per the current guidance value and re-determine reasonable increase in rental value, it could answer the test of elasticity. Currently, Bangalore City Corporation is in the process of doing exactly the same. Time will tell whether this has succeeded and if so Bangalore would be the first city in the country to have passed the test of elasticity under an area-based system. If it area-based system ensures revenue increase and there is a mechanism to help its buoyancy then there is no need to move into a capital value system despite all the virtues of a capital value method as the area-based system would be doing exactly ensuring the same results.

3.11 Transparency

Transparency is a desirable attribute of the local property tax. If taxpayers understand how they are taxed, they will be more likely to comply with the system. The annual value system and the previous administrative regime did not produce a transparent system. The new property tax system does introduce some transparency. To some, the new value concept is an easier one to understand: the property tax base is the market (rental) value of the property owned. Each taxpayer may read his/her square footage value from a table (and may also read his/her neighbor’s values). A taxpayer can actually calculate tax liability based on a schedule of values, tax rates, and his/her declaration of the physical characteristics of the property. The taxpayer can make the payment to an objective third party, a bank, and might have more confidence that the funds will be used for government purposes. For all these reasons, it might be expected that property owners are more willing to pay the property tax. The higher collection rate in the first year of the reform suggests that there is some truth in this argument.



3.12 Administrative Costs Under a self-assessment scheme the administrative costs may well turn out to be less burdensome than those that would be incurred under a more conventional property tax system. Still, there are important concerns to be addressed.

On the one hand, there is some possible cost efficiency in this new system. Since the mass appraisal system where assessment is based on indexes of value it significantly lower the costs of administering a property tax system. The mass appraisal method will eliminate the need to spend time and energy in surveying rents in every neighborhood or mapping and valuing every property. Secondly in the long run it could also reduce administrative costs since the need for collectors and inspectors is much reduced.

But to sustain the reform of property tax, there must be significant investment in administration to sync with the new assessment and collection system. Among the costs to be considered is the method to increase the coverage of property so that every property within the jurisdiction came into the tax net. This would involve a physical survey of all properties in the city, and then to put in place a process to maintain this roll. This survey would involve a significant one-time cost but would depend on continuous process of updating update and interfacing with other registration systems. This might include coordination of property tax registration with electricity and water connections, business licenses, building permits, property transfers, etc. At present, such cross checking is not routinely done. Once these data sets are integrated, and the numbering systems are made unique, this could yield a significant return in additional revenue to all civic agencies sharing a common database.

At the time of preparing the report BBMP had already invested sufficient amount of time and money to complete the database of all the properties liable for payment of property tax with the help of satellite pictures. BBMP had also supplemented this huge task by physical verification. With the data so prepared, BBMP is better equipped in checking both non-payment of taxes and short payment of taxes. This would ensure better compliance. BBMP has also invested in property tax software developed by the National Informatics Center. This software is designed to generate Computerized Demand Collection Book to monitor tax collection, selection of cased for random scrutiny and monitoring of arrears.

3.13 Horizontal Equity The property tax should be horizontally equal. That is, it should treat similar properties in the same way. Or, if properties are to be treated differently, the reasons for this differential treatment should be justified. When properties are taxed differently, some parts of the population are burdened more than others. It would be of interest for the report to examine this specific issue in particular. The 2.5 times cap on property may tilt the scale of horizontal equity. Bangalore City Corporation may have due to contingency given benefit of 2.5 times to old properties to keep the increase incremental. However, there could be resistance if the cap is removed in the next revision.



3.14 Key Benefits and Lessons Learnt The property tax reform did achieve some success. It helped built the taxpayers’ confidence that the City Corporation would bring about transparency in tax administration. The fact that the scheme clearly specified the rates applicable for the various zones and they use of property was in itself an eye opener to the taxpayer. This completely removed any discretion that the revenue staff exercised.

However, for the reform to sustain over time there are several actions to be taken. First and the foremost are to have a long-term strategy for property taxation. The Self-assessment scheme was rolled out as an optional scheme due to contingency. But to continue to keep the scheme optional will complicate the tax system and hence should be made mandatory by passing suitable legislation.

Any object of reform is to increase coverage and collection efficiency. To achieve this the revenue department must be set reasonable target of coverage and collection. At present there is no evidence the target being set that can be called reasonable.

A physical mapping exercise is a high priority, in order to establish a cadastre. Crosschecking with other registration systems (e.g., water, electricity) could also increase the coverage of the property tax, and could enhance the updating of the cadastre.

Tax enforcement must be a priority. The self-declared property tax liability should be randomized for inspection. The gross negligence in not conducting verification has resulted in loss of revenue that the Corporation can ill-afford. There should be two levels of auditing self-declared returns-one a sample and another detailed verification especially high value properties.

Once when the property tax details are computerized, it is easy to generate false returns. A proper system of record keeping and reporting does not presently exist, and should be developed to support the new system, which would allow a monitoring of the performance of the property tax.

End Note

In keeping with the suggestions of the property taxpayers of Bruhat Bangalore Mahanagara Palike the Government has further amended the KMC Act to introduce property tax assessment under Unit Area Value (UAV) system from February 2009. Most of the cities introduced the area-based system during the year 1999 and 2002. However, after this first revision of property tax none of the urban local bodies have been successful in revising the property tax assessment except Bangalore. Unless there is a mechanism devised to enable periodic revision of the property assessment values property tax revenue will stagnate and will lose all its buoyancy. Bangalore City Corporation has shown a way how the area-based system can be as effective and revenue productive as in a system under capital valuation. The assessment and design of the property tax system under UAV is exactly similar to the old optional SAS under the ARV system and is applicable only to properties within the Bruhat Bangalore Mahanagara Palike jurisdiction.



Under the earlier SAS (ARV) system property was assessed on the basis its location, quality of construction, usage, occupancy and the age of the building. All these physical and usage features of the property were taken together and the annual rental value per square foot per month was determined. The Ministry of Urban Development, Government of India, has termed such method of property tax assessment as Unit Area Value. In the KMC Act a new Section 108A has been inserted with corresponding Rules for property tax assessment on the basis of Unit Area Value. The Unit Area Value under this section is defined as: “ an average rate of expected returns from the property per sq.ft. per month determined by the Commissioner, BBMP on the basis of the average market rate determined through mass appraisal method or real estate market information or any other reliable source or combination of these sources that he may consider it as sufficient and reasonable having regard to the location, type of construction of the building, parking area of vehicles in non-residential building where it is charged and such other criteria as may be prescribed. Different rates may be determined for different area or street by classifying into zones, different nature of use to which the vacant land or building is put and for different class of buildings and vacant lands”

The Bangalore property tax collection that stood at Rs.440 Crs during 2007-08 short up to Rs.780 Crs during the year 2008-09 and is expected to touch Rs.1000 Crs by the end of the year. This endnote is to track the process of how Bangalore was successful in revising the property valuation and paved for its revenue potential.

In the categorization of properties 5 categories for residential use and 13 categories for non-residential use have been provided, which include vacant land, telecommunication tower, hoarding and service charges for properties exempted from property tax. All residential properties have been categorized based on the roof type. A further category has been provided especially for the benefit of old houses where the entire flooring is in either cement or red oxide. All residential houses except those under category mentioned in category IV and V is zone specific. While certain categories of non-residential use of property are zone specific, there are certain classes of non-residential use, which are distinct and hence not zone specific.

During January 2007, 7 City Municipal Council (CMC), 1 Town Municipal Council (TMC) & 110 villages merged with Bangalore Mahanagara Palike (BMP) to form the new Bruhat Bangalore Mahanagara Palike (BBMP). The erstwhile BMP was 240 square kilometers and the new BBMP is now 800 square kilometers, making it the largest urban local body in the country. With this merger a new problem arose. While the erstwhile CMC and TMC were collecting property tax under the CVS scheme, the erstwhile area under BMP, ARV system was being followed. With the merger of the erstwhile CMCs and TMCs with BMP, there cannot be two methods of property tax administration, CVS for the newly added zones and SAS for the old BMP area. Hence there was an urgent need to bring in uniformity in tax administration. Since there was resistance from the taxpayers from moving into CVS the Government was forced to concede to the people’s request and amended the law to bring in an area based system of property tax assessment for the whole of Bruhat Bangalore Mahanagara Palike jurisdiction.



It must be noted that the new policy came to effect only from 10th February 2008 for the tax period 2008-09. This late commencement has resulted in incomplete coverage. Secondly, the tax collection for the year 2009-10 has commenced from July 2009. For the citizen to pay the tax twice within the same year has posed a problem and has directed reflected in the coverage. However with the aid of the GIS map, it is possible that the revenue department will be able to complete the coverage as now they have a basis for issue of notices to specific properties and tax administration can also oversee the coverage on a day-to-day basis.

(a) Conservancy Tax.

(b) Lighting Tax.

BHUBANESWAR


Share of PT to Total Rev. Rect. (06-07)Map

Share of PT to own Sources (06-07)Composition of Property Tax

1. Holding Tax.

Major Reforms/ Innovative Measures1.Need to start the process of implementing assessment on Unit Area Basis as early as possible This would require drafting of byelaws which will lay

35%

39%

26%


9%91%


90 00

100.00


3. The new system is more amenable to self-assessment as this will widen the tax net and increase tax collection.4. A web-based system of tax collection using banks for payment of Property Tax is a taxpayer friendly device that impels the taxpayers to avoid the hassles of commuting to municipal tax collection centres for payment of tax. Such a web-based system enables online payment of tax as well.


2. BMC started the process of property mapping and GIS for the purpose of improving the coverage and the assessment net.

as early as possible. This would require drafting of byelaws, which will lay down the guidelines for a more rational assessment.

35%

39%

26%


9%91%


0

20

40

60

80

100

120

140

2001-02 2006-07

40.2

99.66

0

2

4

6

8

10

2001-02 2006-07

1.11

4.6

Prop

erty

Tax

(

in

Cro

res)

00.5

11.5

22.5

33.5

4

2001-02 2006-07

0.52

1.2

Ass

esse

d Pr

oper

tie

(inLa

khs)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

2003-04 2004-05 2005-06 2006-07

63.1556.07

65.45 68.27

Col

lect

ion

Effic

ienc

y (

%)



4.0 Bhubaneswar Municipal Corporation

4.1 Introduction Under the provisions of Bihar and Orissa Municipal Act, 1922, Bhubaneswar was first constituted as a Notified Area Committee on February 1, 1948 with an area of over 17.51 square kilometers. It was reconstituted as Notified Area Council (NAC) under the provisions of Orissa Municipal Act, 1950 with effect from October 1, 1952 with an area of 26.08 square kilometers. It continued to be a NAC till 29th March 1979, when it became a municipality. On October 1, 2003, the Orissa Municipal Corporation Act, 2003 (OMC Act) was enacted and Bhubaneswar Municipal Corporation (BMC) came into being with an elected Mayor and council.

4.2 Urban Governance The organizational setup of BMC comprises a political and an executive wing. The political wing is an elected body comprising Councilors from different wards in the city and is headed by the Honorable Mayor. The executive wing, headed by the Municipal Commissioner, looks after the day-to-day functioning of BMC and supports the political wing in the decision-making process. Under the Municipal Commissioner, the wing is assisted by a Deputy Commissioner, Secretary, Deputy Secretary, Establishment Officer, Chief Financial Officer, Recovery Officer, Slum Improvement Officer, Environment Officer, City Engineers, City Health Officer, Chief Medical Officer and Law Officer.

The general body is headed by the Honorable Mayor and consists of 9 Standing Committees, of which Taxation, finance and accounts is one.

4.3 Overview of Finances The different sections within BMC can be classified by the different functions of the Corporation viz. finance, revenue, civil, administrative, enforcement, audit, legal, public health, medical, environment and slums. The Chief Finance Officer (CFO) heads the finance function within the Corporation.

In BMC, revenue as a function does not fall in the purview of any one department/officer. Responsibility for assessment, collection and enforcement for different revenue resources is distributed across the board. For instance, while Holding Tax and Rent from Markets, is under the Deputy Commissioner, the responsibility for License Fees is divided between the Secretary and Deputy Secretary. For other revenue areas such as houses/yatri niwas, kalyan mandaps, the responsibility is with the Establishment Officer.



Figure: 4.1 Organisational Structure, Holding Tax Department, BMC

Table 4.1: Overview of Income and Expenditure Profile of BMC

Particulars (Rs. in lakhs)

2001-02 2002-03 2003-04 2004-05 2005-06 (up to 8 months)

Revenue Receipts 2912.70 3056.86 3075.82 3102.98 2469.07 Capital Receipts 32.94 81.56 93.48 234.79 435.76 Total Income 2945.65 3138.42 3169.30 3337.77 2904.83 Revenue Expenditure 1879.77 1630.32 4252.29 2579.48 2523.24 Capital Expenditure 510.93 165.52 452.14 1006.65 1120.44 Total Expenditure 2390.70 1795.84 4704.42 3586.13 3643.68

Source: BMC Budget Documents

As can be seen from Table 4.1, the revenue expenditure of BMC has always been lower than the revenue receipts in the last five years and the surplus is utilized to fund capital expenditure. Overall, since the formation of the Corporation in 2003, BMC has had an overall deficit at the end of the year. The deficit was highest in the year 2003-04 because of the payment of arrears to the conservancy staff.

All recurring items of income and expenditure are included under the revenue account. The revenue account consists of two components, i.e. revenue receipt and revenue expenditure. Revenue receipt comprises Own Revenue, Assigned Revenues & Compensation, Non-Tax Revenue, Revenue Grants Contribution and Subsidies from the government organizations. Revenue expenditure comprises expenditure incurred on Salary & Wages, Operation & Maintenance, Administrative Expenses, and Debt Servicing and Miscellaneous Expenses.

Deputy Commissioner

Tax Daroga (4)

Tax Collectors (76)

Cashier (1)



Table 4.2: Summary of Revenue Account - BMC

Source: Report: Improved Creditworthiness of BMC, 2007, IPE under FIRE-D Project

As can be seen from Table 4.2, the total revenue receipts of BMC have been on the rise. The major contributors to this have been the tax revenue from own sources (primarily Holding Tax), which has grown from a mere 10.5 % in 2001-02 (Rs. 305.91 lakhs) to 23 % in 2004-05 (Rs. 566.94 lakhs; up to eight months). The increasing trend of own revenue is partially due to the hike in tax rates in 2005 and partially due to proactive efforts of BMC to bring more assessments into the tax net.

4.4 Tax System The revenue sources of BMC can be broadly categorized as own sources (including both tax and non-tax revenues), assigned revenues, and revenue grants and subsidies. Holding tax is the major source of tax revenue while other taxes includes tax on carriage and carts, advertisement tax and tax on animals. Non-tax sources include fees and charges levied as per the OMC Act 2003, such as rent from municipal properties, fees and user charges, sale and hire charges, parking fees, etc. A major source of revenue income is in the form of assigned revenue, which contributes about two-third of the revenue income on average. This source mainly includes compensation in lieu of Octroi.

Own sources of tax revenue comprise Holding Tax, Conservancy Tax/Latrine Tax, Lighting Tax, Tax on Carriage and Carts, Tax on Animals, Advertising Tax. Holding Tax along with Conservancy and Lighting Tax form the major part of own tax revenue contributing as much as 87% of total collections.

Holding Tax has got the nomenclature of Property Tax in the Orissa Municipal Corporation Act, 2003. But since Rules and by-laws regulating the property Tax is in the pipeline, for the time being as per Orissa Municipal Act, 1950 Holding Tax is being collected. Any holding within BMC limits having clear right, title, interest of the holder is liable to pay Holding Tax @ of 17.5% of the annual value of the holding depending on the nature of holding, i.e. either residential or commercial.

-

Particulars 2001-02 2002-03 2003-04 2004-05 2005-06 (upto 8

months)Total Revenue Receipt (Rs in lakhs) 2,912.70 3,056.86 3,075.82 3,102.98 2,469.07Tax Revenue (Own Sources) 10.50% 10.03% 12.12% 19.19% 22.96%Assigned Revenues & Compensations 76.27% 75.12% 80.29% 69.82% 61.48%Non Tax Revenue 4.83% 3.75% 2.51% 6.43% 8.99%Revenue Grants, Contributions and Subsidies 8.39% 11.09% 5.08% 4.56% 6.56%Total Revenue Expenditure (Rs in lakhs) 1,879.77 1,630.32 4,252.29 2,579.48 2,523.24General Administration 62.36% 69.71% 83.24% 40.49% 25.95%Administrative Expenses 36.39% 29.17% 11.36% 56.78% 73.28%Revenue Grants, Contributions And Subsidies 0.85% 0.30% 1.37% 2.18% 0.19%Miscellaneous Expenses 0.40% 0.82% 4.02% 0.55% 0.58%Revenue Surplus (Rs in lakhs) 1,032.93 1,426.54 -1,176.46 523.50 -54.17



The Annual Value of a Holding for residential, commercial purpose and residential holding used on rent is calculated as per following procedures.

Table 4.3: Steps to Calculating Annual Value among Property Categories

(A) Residential Properties Step I

Step II Step III

Hence Annual Value Amount arrived through = Step IV

Holding tax is levied per annum@ 17.5% of the Annual Value whose break up is as follows:

Plinth area of the holding in Sq. Meter x Rs 13.65 = say X

Deduct 15% of "X" towards repair & maintenance

Add 0.5% of the land cost where the holding is located (Land cost to be determined as per G.A. Department Notification dated 01.05.1998)

(Step I + Step III – Step II)

Holding Tax: 10% Latrine Tax: 2.5% Street Light: 5% Total 17.5%

(B) Commercial Properties Step I Step II

Step III

Step IV

Add Civil Cost of the building + the cost of P.H & Electric fitting

Take 7.5% of the value arrived through step I

Add 0.5% of the land cost with Step II

17.5% of the Cost arrived at Step IV is the Holding Tax payable per annum

(C) Residential Holding Used On Rent Step I Step II Step III Step IV Step V Monthly rent of the building x 12 = X

Deduct 15% of X towards maintenance cost

Add 0.5% of the Land Cost where the building is located

Hence annual value of the building is (Step I + Step III – Step III)

Holding Tax is levied @ 17.5% of the Annual Value arrived at Step IV

Source: Same as Table 4.2



Table 4.4: Composition of Own Sources of Tax Revenue - BMC

Particulars (in %)

2001-02 2002-03 2003-04 2004-05 2005-06 (Up to 8 months)

Holding Tax 36.56 42.96 37.29 43.34 48.03 Conservancy/Latrine Tax 18.78 21.85 18.89 21.65 13.40 Lighting Tax 29.89 34.75 30.09 34.65 26.16 Tax on Carriage and Carts 1.09 0.44 0.33 0.18 0.16 Tax on Animals 0.00 0.00 0.00 0.00 0.00 Advertisement Tax 13.68 0.00 13.41 0.18 12.26


Holding Tax (including Conservancy and Lighting Tax1) collection of BMC has almost tripled from Rs. 277 lakhs in FY 2001-02 to Rs. 750 lakhs in FY 2005-06 (Table 4.4). Along with increased collections, arrears collection has also been good and the balance of arrears for 2005-06 came down to 34.53 % from 50.46 % in 2001-02. It is noteworthy that this significant change is due to the proactive efforts of BMC to bring more assessments into the tax net and improve collection and assessment performance, as there has been only limited tax revision during this period. The officials of BMC are expecting a higher growth in the collection of Holding Tax during the year 2006-07.

Another important point to consider here is that, while arrears collection from private properties has come down from 43.56 % in 2001-02 to 11.52 percent in 2005-06, during the same period, arrears from government properties decreased marginally from 54.66 % to 47.60 percent. Major defaulters of BMC in terms of collection of Holding Tax include central government departments like Airport Authority, Railways, Postal Department, Doorbhash Nigam, etc., and state government departments like Department of Tourism, etc. In addition, there are several commercial and institutional defaulters as well. Today the Corporation is providing urban services to about 16 mouzas2 on the periphery of the city, but is not collecting any revenue from them. These mouzas are yet not included in the Corporation limits by legal notification and are still under Tehsils. An estimate projects an additional 20,000 holdings that can be brought within the net through these villages.

1 In the current tax assessment system, the Conservancy and Lighting Tax is also included in the

Holding Tax calculation but deposited in the Corporation’s Cash Book under different heads. The mismatch in the growth percentages of the Holding, Conservancy and Lighting Tax clearly suggests that there is no proper mechanism to monitor collection.

2 Small village settlements



Table 4.5: Demand-Collection-Balance of Holding Tax from Government and Private Properties –

BMC

Year Demand CollectionCollection Efficiency Total (Rs. In Lakhs)

Total (Rs. In Lakhs)

2001-02 559.29 277.06 50.46 2002-03 651.96 325.78 50.03 2003-04 882.57 557.81 63.15 2004-05 749.32 420.96 56.07 2005-06 1146.37 750.48 65.45 2006-07 1286 878 68.27


BMC is pro-actively working towards bringing more properties under the assessment net. As per estimates only around 75,000 properties were under the tax net of BMC in 2005-06. BMC in the last few years itself had added close to 7,707 properties to this list (Table 5). Rough current estimates for year 2006-07 put this figure close to 90,000. However, there could be almost the same number of properties, which are still out of the assessment net. Conservative estimates put this figure at another 50,000 properties at least. BMC is also in parallel conducting revised assessment of old properties to correct any mis-assessments in the past.

Table 4.6: Number of Holdings Assessed - BMC

Financial Year New holdings Revised holdings Total holdings 2003-04 4,239 3,701 7,940 2004-05 5,720 4,215 9,935 2005-06 7,707 9,667 17,374


The demand for 2006-07 is stated at 12.87 crores. However, it may be noted that in the current system, the arrears of the previous year get added in the current year’s demand. This is not the correct reflection of BMC potential from Holding Tax. For instance, out of the total demand of Rs. 12.87 crores for 2006-07, arrears would amount to almost 38 percent of the total demand. Exemption under the Municipal Act of Holding Tax (excluding of latrine and light tax which is service tax) is allowed in case of government buildings (other than residential). It is being extended to bring schools, hospitals and government cultural institutions under it. These only pay 7.5% towards latrine tax & light tax while being exempted from paying 10% Holding Tax as per the Act.

There is an increasing need to improve own sources of revenues at the local level especially from holding tax, since this forms the backbone of own tax revenue for BMC. In principle, the base of the Holding Tax should respond to the increasing value of properties. In practice, there is growing evidence that this tax has not been a buoyant source of revenue. In fact, growth in revenue has not been commensurate with its potential due to inadequate policies, legal problems and inefficient administration. Already a number of reforms in this area is in process, including shifting from



annual ratable value to unit area method of assessment for simplified Property Tax assessment, introduction of self-assessment schemes and people friendly bill collection, etc. Overall, analysis of own tax revenue sources of BMC reveals the proactive efforts of the Corporation to strengthen its systems. The potential under the head is unlimited and needs to be explored further for more revenue realization than current levels. Holding Tax remains the most important source of own tax revenue. While there have been positive trends with increasing current and arrears collection, which have increased by around 80 percent in the FY 05-06 over FY 04-05, still only 50-60 percent of properties are currently in the tax net. There is a need for adoption of a simplified tax assessment system (unit area method) and for people friendly billing and collection (self-assessment). Options for decentralized bank collection may also be explored. Further, stricter enforcement laws need to be instituted to ensure proper collections in the future.

4.5 Issues /Problems/ Suggestions While the level of interaction with citizens and stakeholders on various issues related to

the Corporations functioning is picking up, there is still a need for a proper communication strategy as most of these efforts have been ad hoc and individual driven. Work in this direction is on.

The Corporation is now in process of developing a Citizens’ Charter. A draft of the same has been prepared and the Corporation plans to have a consultation workshop.

The system of grievance redressal is also being strengthened. The Corporation has started a toll-free help line for citizens. It is also considering setting up a system of on-line grievance redressal with linkages to the Citizens’ Charter. The timelines of the Citizens’ Charter will be linked with the grievance redressal system and any complaint that is not addressed in the given time as per the Charter will be flagged to the concerned senior official for appropriate action. The Corporation is also working towards setting up decentralized grievance redressal centres in different parts of the city.

Finally, BMC has reached a critical mass where it needs to shift to more advanced management systems. The requirement for use of e-Governance is not only to fulfill one of the mandatory requirements of JNNURM, but also required for efficient functioning of the Corporation. Looking at the current systems, computerization of some of the key functions such as financial accounting and budgeting, integrated GIS/MIS for collection of Property Tax, market rent, license fees, hoardings fees, etc.; HR and payroll management; public grievance; and citizens’ portal are required in the first phase.

4.6 Reform Interventions BMC has been trying all possible measures and initiatives to provide more effective and efficient services to its citizens. But due to limited financial resources and expertise, the progress in this direction has been slow. There is a need to provide a push to this reform process ultimately to ensure better services for its citizens, by means of enhancing revenues, managing costs and making the systems more efficient.



4.6.1 Property Tax Reforms

Given that the rate of Property Tax was recently revised by BMC in 2004, there is a need to improve the coverage, assessment mechanism and collection efficiency for Property Tax for improved resource mobilization. The current system of assessment, i.e., based on Annual Rental Value (ARV) should be revised. As per the OMC Act 2003, BMC should adopt a more simplified tax assessment method, i.e., Unit Area Method (UAM). Also as per the OMC Act 2003, BMC cannot assess new properties or increase tax rates without converting to the new system. Therefore, BMC should start the process of implementing assessment on Unit Area Basis as early as possible. This would require drafting of byelaws, which will lay down the guidelines for a more rational assessment based on zoning of the Corporation area on property values and level of infrastructure available. The byelaws will need to spell out clearly the enforcement rules and penalty clauses for non-compliance. For the purpose of the reforms in this area, the following short- to medium-term interventions may be taken up.

a. Returns by Property Owners/Occupiers

It has been analysed that currently as many as 30-40% of the properties in BMC area are outside the Property Tax net. The OMC Act 2003 provides for the Commissioner to issue a notice under Section 219(1) asking property owners and occupiers liable to pay Property Tax to furnish returns regarding their property in prescribed formats. Hence BMC should:

Increase the number of properties under the tax net. Since the notice will be binding on the citizens to file property returns, it will lead to an increase in the number of properties in the database of BMC and the new properties can then be assessed for Property Tax.

Help in analysing the revenue that is expect to be generated once the Corporation converts to UAM. The Corporation also needs to arrange for analysis of this database to provide necessary information to the Municipal Valuation Committee (MVC).

b. Computerisation of Property Records

BMC in the short-term could also look at computerization of its property records. The computerised system will need to have provision for computation of arrears, interest, penalties and rebates and will help in more effective cost recovery. BMC currently maintains 80,000 plus property records manually. There is an urgent need for computerization of the property records to improve the levels of recovery of tax.

c. Conversion to UAM

The proposed system will have the following features:

The annual value of the property will be determined by multiplying the floor area of the property by a standard rate. This rate will be statutorily determined based on the “location” and “structural” characteristics of the property;

There will be separate rates for different areas and types of buildings to cover the variations in terms of annual valuation. However, these will be declared upfront and shall not be subject to any discretion;

There shall be a reduction in rate structure to encourage voluntary compliance and complete coverage of properties; and

Special exemptions/rebates shall be provided for bustees and areas where civic services are deficient in order to ensure equitable charge.



The new system was to be implemented in the year 2008. Subsequent to which the Municipal Valuation Committee (MVC) will need to be appointed for finalization of the zone-wise rates under the UAM.

d. Property Mapping and GIS

In parallel to conversion to the UAM system for improvement in assessment and collection, BMC should also start the process of property mapping and GIS. For the purpose of improving the coverage and the assessment net of the BMC, the Corporation will need to map the properties under its jurisdiction. It is advisable to integrate such maps and property information on a Geographical Information System (GIS).

e. People Friendly Collection Systems

For improving the demand and collection efficiency, BMC will need to adopt people friendly bill collection systems. Under the UAM, BMC may introduce a self-assessment system with a progressive rebate mechanism for early declarations and separate its assessment, collection and enforcement systems. While in self-assessment, there will be no need for an assessment wing, collection could be outsourced through designated banks or done online through electronic fund transfer/ECS.

Self-Assessment System: The new system will be more amenable to self-assessment. Grouping of lands and buildings in different categories with pre-determined unit area values will help the assesses to work out the rateable value themselves. They would, thus, be able to assess their own tax and pay it on their own by filing a tax return on the lines of Income Tax. This system of self-assessment will widen the tax net and increase tax collection.

Payment Gateways: A web-based system of tax collection using banks for payment of Property Tax is a taxpayer friendly device that impels the taxpayers to avoid the hassles of commuting to municipal tax collection centres for payment of tax. Such a web-based system enables online payment of tax as well. It also makes it easier for the municipal bodies to monitor tax collection on a daily basis.

Public information and dissemination: The characteristic of an efficient tax system is that it is easily understood and widely accepted. For acceptance of the proposed system of Property Tax, it is necessary that maximum possible publicity is given to it and ratepayers have a chance to understand and appreciate the new system of taxation. For this it is proposed that:

a) There should be intensive discussions with all affected stakeholders before finalising the unit area rates for application; and

ii) Adequate publicity and information availability to citizens through media, website, Property Tax camps and user handbooks.

1. Self Assessment System is implemented through online mode and other e- governance measures like ECS credit card online payment


CHENNAI

3. Library Cess.

Share of PT to Total Rev. Rect. (07-08)Map

1. General Tax.

2. Education Tax.

Major Reforms/ Innovative Measures Demand and Collection

41%

59%

PT

100.00

120.00

85 90

104.02

(%)

78%

22%

PT Non Tax Receipts

other e- governance measures like ECS, credit card online payment etc.

3. The Black Berry System of collection pave more avenues to fetch higher income by way of PT collection.

2. Innovative methods to reorient the administrative system.

Per Capita Property TaxGrowth in Assessed Properties

Growth in PT Collected

4. Payment of PT by Automatic Teller Payment Machine, ATM machines, Mobile Technology and Internet Banking.

5. Achieved the target of covering 85% of the total properties.

41%

59%

PT

0

100

200

300

400

500

600

700

2004-05 2007-08

500.12

670.64

200

220

240

260

280

300

2004-05 2007-08

267.42

283.8

Prop

erty

Tax

(

in

Cro

res)

0

2

4

6

8

10

2004-05 2007-08

4.835.4

Ass

esse

d Pr

oper

tie (i

nLak

hs)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2004-05 2005-06 2006-07 2007-08

84.34 83.87 85.90

104.02

Col

lect

ion

Effic

ienc

y (

%)

78%

22%

PT Non Tax Receipts



5.0 Corporation of Chennai

5.1 Introduction: City Profile Chennai is the capital city of Tamil Nadu having a city population of 43.43 lakhs (as per the Census of India, 2001). It had an area of 176 Sq. Km. and density of 247 per Ha in 2001. Its sex ratio was 957 females per 1000 males in 2001. The literacy rate of the city was 76.81 percent. The majority of residents of the city are native Tamilians and speaks Tamil. Second language is English, which is widely spoken and used in business, education and in other professions. Chennai has been a regional hub since British times and has a large number of Marwari traders. It also has a small population who work for industries and IT Centers.

5.2 Urban Governance The metropolitan region of Chennai is governed by the Corporation of Chennai (CoC). It was established under the Chennai City Municipal Corporation Act, 1919 for taking care of the civic functions of the metropolis. In conformity to the Constitution (Seventy-fourth Amendment) Act, 1992, a number of fundamental amendments to this Act were made providing for the constitution of Wards Committees, Standing Committees and its functions and powers. Besides, some amendments were also made in the Act, viz. the powers of the Mayor and Commissioner, Taxation powers of the Corporation, creation of various committees, provision of rain water harvesting, introduction of voting machine and certain disqualifications for contesting as Mayor and Councilors.

For the efficient performance of the functions of the Corporation of Chennai, there are the following municipal authorities:

1. Council;

2. Mayor;

3. Standing Committees;

4. Ward Committees; and

5. Commissioner.

There are six Standing Committees, which governs the administration of the Corporation, and the Chief Executive of the Corporation is the Commissioner. The Council has delegated the following duties/powers to the Standing Committees:

1. Taxation & Finance;

2. Works;

3. Town Planning;

4. Health and Family Welfare;

5. Audits and Accounts; and

6. Education.



The administration of the Corporation has been decentralized at 10 Zonal Offices and the Ward Committee headed by the elected Councilor as Ward Committee Chairman governs each zone. In Chennai, there are 155 wards and out of which 52 Councilors are women. There are 10 Ward Committees, each chaired by the Ward Councilor of the respective zone.

In the administrative set up, The Deputy Commissioners work under the supervision of the Commissioner. There are four Dy. Commissioners of I.A.S. cadre for Revenue and Finance, Works, Education and Health.

5.3 Overview of Finances The Corporation of Chennai has recorded a revenue surplus of 3%, 6% and 1.27% in 2004-05, 2005-06 and 2006-07, respectively. However, it showed deficit of 1.09% in the year 2007-08. Similarly, the Corporation has registered net (capital) revenue surplus as 6.57%, 10.88% and 4.23 in 2004-05, 2005-06 and 2006-07, respectively. In the year 2007-08, the Corporation registered a deficit of 2.25%.

The revenue receipts of the Corporation consist of tax receipts, non-tax receipts, State Govt. transfers, CFC transfers and others. It is to be mentioned that the percentage share of these components to the total revenue receipts remained more or less the same (with a little variation) during last four years (from 2004-05 to 2007-08). It reflects that the Corporation has not increased its internal revenue sources during the above-mentioned period (Table 5.1).

Table-5.1: Financial Statement of the Corporation of Chennai (Rs. in Crores)

Description 2004-05 2005-06 2006-07 2007-08 (a) Revenue Receipts i. Tax Receipts 267.42

(51.00) 272.89 (44.06)

291.85 (46.35)

283.80 (40.77)

ii. Non-tax Receipts 57.35 (10.95)

69.72 (11.26)

67.37 (10.70)

79.75 (11.46)

iii State Govt. Transfers 13.39 (2.56)

52.97 (8.55)

13.50 (2.14)

16.18 (2.32)

iv. CFC Transfers 6.37 (1.22)

19.10 (3.08)

19.10 (3.03)

19.10 (2.74)

v. Others 178.99 (34.19)

204.62 (33.04)

237.87 (37.79)

297.25 (42.70)

Total Revenue Receipts 523.52 (100.00)

619.30 (100.00)

629.69 (100.00)

696.0 (100.00)

Capital Receipts 162.39 187.28 144.47 186.34 Total Income of Corporation 685.91 806.58 774.16 882.34 Total of Revenue Expenditure 508.24 584.25 621.78 703.77 Capital Expenditure 135.39 143.16 120.96 198.87 Total Expenditure of Corporation

643.63 727.41 742.74 902.64

Revenue Surplus/Deficit 15.25 3.01%

35.05 6.00%

7.91 1.27%

- 7.69 - 1.09%

Net Surplus/Deficit 42.28 6.57%

79.17 10.88%

31.42 4.24%

- 20.30 - 2.25

Source: Corporation of Chennai.



Note: Figures in parenthesis are the percentage shares.

5.4 Importance of Property Tax on Revenue Generation A detailed analysis of the tax revenue structure of the Corporation indicates that the percentage share of property tax to the total tax revenue is 43 % (as per actual of 2006-07) and 78 % to total tax by Corporation (excluding assigned revenue). Hence, the property tax is the continuous major source of revenue for the Corporation (Table 5.2). It suggests a critical analysis of the property tax system of the Corporation, problems faced in enhancing the property tax revenue and attempts made by the Corporation to increase the property tax revenue.

Table 5.2: Tax Revenue Structure-CoC

Tax Revenue Revenue (Rs. in thousands)

Percentage Share to Total Tax Rev.

Percentage Share to Total Tax by Corp.

(i) Tax by Corporation (a) Property Tax 2,27,7145 42.99 78.02 b) Professional Tax 63,68,90 12.02 21.82 c) Company Tax 36,49 0.07 0.13 d) Timber Tax 4,37 0.01 0.01 e) Advert. Tax 3,85 0.01 0.01

f) Tax on carriages & animals

14 0.00 0.00

Total of Tax by Corp. 2,91,85,20 100.00 (ii) Assigned Revenue a) Duty on transfer of properties

1,12,21,77 21.18

b) Entertainment Tax 3,50,00 0.66 c) Assignment from Tax Revenue

1,22,15,10 23.06

Total of Assigned Revenue 2,37,86,87 Total of Tax Revenue 5,29,72,07 100.00


5.5 Property Tax System 5.5.1 Structure of Property Tax

Property tax is a generic name under which presently the CoC is levying three different revenue taxes. They are General Tax, Education Tax and Library Cess.

5.5.2 Assessment of Property Tax

As per Section100 of The Chennai City Municipal Corporation Act 1919, every building shall be assessed together with its site and other adjacent premises occupied as thereto unless the owner of the building is a different person from the owner of such site or premises.



The annual value of lands and buildings shall be deemed to be the gross annual rent at which they may be reasonably be expected to let from month to month or from year to year and in case of any Government or Railway building.

The Annual Value of the premises shall be deemed to 6% of the total estimated market value of land at the time of assessment and the estimated cost of erecting the building at such time after deducting for depreciation a reasonable amount which shall in no case be less than 10% of such cost.

From the period of General Revision made in the year 1993-94, the concept of reasonable letting value (R.L.V.) has been adopted for arriving the annual value. This is area based PT assessment system. For this purpose the area of Chennai City has been divided into 172 parts as residential and 274 parts as non – residential area, which includes residential area also.

The basic rates have been fixed which are as follows:

Residential Minimum Rs. 0.50/sq.ft Maximum Rs. 2.00/sq.ft

Non Residential Minimum Rs. 3.00/sq.ft Maximum Rs. 9.00/sq.ft

The following factors are taken into account for levying Property Tax:

1. Plinth Area 2. Basic Rate 3. Usage of Building 4. Occupancy (Owner or Tenant 5. Age of the Building 6. Nature of Construction

The Annual Value is calculated as –

If Rental Value is Rs. 100/- per month,

Then Rental Value per year 100 x 12 = 1200

Less 10% for and Land = 120

1080

Less 10 % for Maintenance & Repairs = 108

972

Add Land Value = 120

Annual Value for Rs. 100/- is Rs. 1092/-



As mentioned earlier that the property tax comprises of General Tax, Education Tax at 2.5% and Library Cess at 1% is calculated from General Tax of Property Tax.

The following kinds of concessions are allowed for calculating the Property Tax:

20% rebate over monthly rental value is provided for semi-permanent buildings (Tiled, Asbestos, Thatched roofing).

25% rebate over the monthly rental value is allowed for residential and 10% for non-residential buildings for owner occupied buildings / portions.

The basic rates adopted for General Survey 1993-94 is also applicable for General Revision Survey 1998-99 and there is no increase in basic rates (except for 25% increase for residential and 50% increase for non-residential Properties)

There are four grades in Annual value for the Purpose of calculating the property tax.

Table 5.3:Grades in Annual Values for Tax Calculation-C0C

Annual Value Half Yearly Tax 1. Up to Rs. 500/- 6.62% 2. Rs.501/- to Rs.1000/- 9.92% 3. Rs.1001/- to Rs.5000/- 11.02% 4. R.5001/- and above 12.40%


Apart from the residential, non-residential buildings there is some special type of buildings for which the assessment has to be made separately without adopting the basic rates.

As per the Act, the Owner/Occupier/ User has to file a return, through Property Tax Return Form 6 (New Cases), within a period not exceeding one month from the date of notified in this behalf by the Commissioner.

5.5.3 Billing and Collection System

Property Tax is assessed and collected by the Revenue Department of the CoC. This department is headed by the Joint (Deputy) commissioner (R & F) with one revenue Officer, two Additional Revenue Officer, 29 Assisi tent Revenue Officers, 85 Assessors, 50 License Inspector and 276 Tax Collectors.

Apart from Tax Collectors, Property Tax is collected through E.C.S., Online payment through Website www.chennaicorporation.com, through I.O.B., I.C.I.C.I Bank, C.C.C. Bank, I.D.B.I., Dhanalakshmi Bank, U.T.I. Bank, H.D.F.C., Syndicate Bank, Union Bank of India, Punjab National Bank and Credit Cards.



The details of demand and collection of the property tax of CoC , for last 4 years, has been given in Table 3. It may be seen from the table that the property tax collection registered 84-85 percent during 2004-05, 2005-06 and 2007-08. However, it was recorded 104 percent in the year 2007-08. The Chennai Corporation drive to survey and detect the under assessed commercial properties attributed to the increase in collection of property tax for the year 2007-08. The properties in certain areas are found to be under assessed and survey was conducted to complete the whole exercise and 95% of the re-survey is complete and the collection efficiency is now 95%. The property tax collection in the year 2008 already shows further increase in revenue and above 10% over the year.

Table 5.4: Demand and Collection of Property Tax, 2004-05 to 2007-08 (Rs. in crores)

Year Demand/Target Collection Percentage 2004-05 250.00 210.85 84.00 2005-06 260.00 218.07 83.87 2006-07 270.00 231.94 85.90 2007-08 280.00 291.26 104.02


5.5.4 Revision of Tax

The CoC revises its tax in the following way:

1. As directed by the State Government once in 5 years the tax will be revised.

2. Whenever usage changes, tax will be revised.

3. Whenever additional construction is made tax will be revised.

It is to be noted that the General Survey was conducted during the year 1993-94, after a gap of 16 years and during 98-99, another General Revision survey was conducted. There has been no change in the system of property tax in past six years. However, some innovative measures have been taken to enhance the collection efficiency.

5.5.5 Properties Exempted

CoC has exempted some properties from Property Tax. These are as follows:

a. Places set apart for Public worship.

b. Choultries for the occupation of which no rent is charged, for the occupation of which is used exclusively for charitable purpose.

c. Building used for educational purpose thereto and places used for destitute or animals and orphanages homes and schools for deaf and dumb similar institutions run purely on philanthropic lines are approved by the council.



d. Ancient monuments as declared under the ancient monument preservation Act 1904 by the Archaeological department.

e. Charitable Hospitals and dispensaries of railways and state government.

f. Burial and burning grounds.

g. The bed of Coovum, bed of Adyar, the Buckingham canal, Government lands set apart for recreation purposes.

h. All other government properties for no income could be derived as notified by the government.

5.6 Benefits of New System The calculation of property tax has become simple and users friendly. As mentioned earlier, apart from Tax Collectors, the property tax is collected through E.C.S., Online payment through Website www.chennaicorporation.com, through I.O.B., I.C.I.C.I Bank, C.C.C. Bank, I.D.B.I., Dhanalakshmi Bank, U.T.I. Bank, H.D.F.C., Syndicate Bank, Union Bank of India, Punjab National Bank and Credit Cards etc. These new property tax collection systems might have helped in enhancing the collection efficiency.

5.7 Achievements of Property Tax Reform under JNNURM Under the Section 3 (a) of Mandatory Reforms for ULBs, i.e. “Enhancing coverage of property tax regime to all properties liable to tax”, the Corporation of Chennai has achieved the target of covering 85 % of total properties, which are liable for property tax.

5.8 Innovations, Replicability, Sustainability Due to the unrelenting efforts by the officials in the awareness generation front and improving the transparency, responsibility and accountability measures, Self Assessment Scheme is implemented through online mode and other e-governance measures like, ECS, credit card online payment have been widely welcomed by the responsible Chennai Citizens. A Citizen friendly revised tax assessment notice has done away with the complexities entangled it earlier.

The objective of the good governance is to keep changing with the new trend of innovative methods to reorient the administrative system. The Black Berry system of collection and other slew of public facility efforts will pave more avenues to fetch higher income by way of property tax collection.

a. e-Governance Initiatives: The objective of e-Governance is to implement a fully integrated suit of application with a single point of data entry. The Black Berry technology enables the people to do the instant payments from their home. The software opens with a 3 second splash screen of Chennai Corporation Logo. After successful authenticated login by user, the Customer’s Bill No.and sub-division number is provided as inputs to fetch the arrears pending to be paid by the particular customer. The customer can select the payment mode



available in the screen and the payment receipt can be printed using the instant Blue tooth printer.

b. Automatic Teller Payment Machine Mode: The Automatic Teller Payment Machine (ATPM) is an affordable alternative or compliment to the existing payment system, which reduces line-ups and staffing costs. The Revenue Administration of the Municipal Corporation extend the Public comfort by deploying ATPM across all the wards in the city and make facility to pay the tax through ATPM instead of coming to the Corporation office to make payments. This is introduced keeping in mind the busy activity of the citizens and conserve their precious time. By keying in the information like, Name and address through one can view various taxes he is liable and can make payment accordingly.

c. Payment of Property Tax by ATM Machines: Payment facility will be made available in the existing ATM machine of ICICI, SBI, CB, PNB and IDBI by using their respective payment Gate Ways. The respective Bank ATMs can provide the access to the holder of the credit cards/debit cards to avail the facility. All the bankers are looking forward to work with the Chennai Corporation, once their E.R.P. system is rolled out.

d. Internet Banking Based Property Tax Collection System: SMS Reminders and acknowledgements for property tax payers could be sent to keep the track on payments and to facilitate easy payments for the citizens of Chennai.

e. Transparent Way of Property Tax Assessment: The property tax assessment is now made easy by just clicking the computer and providing the required basic data viz. the name of the property owner, area details, utility of property. The moment the particulars were fed in to the computer, automatic S.M.S. messages are given to the field officers to collect the details to finalize the assessment. This envisages the total confidence in the part of the assessee to get the property assessed to tax, thereby preventing any delay in the issue of notices. This facilitates administration with the necessary advantage devoid of any corrupt practice in this regard.

f. Redressal of Petitions: Once the assessment is finalized the temporary notice to be issued to the assessee in which the particulars regarding the name, area, usage are mentioned. If the particulars mentioned in the notice are found to be in order the assessee agrees to pay the tax as mentioned in the notice and if any discrepancy is found on the area, usage and title of the property then the owner files the objections for rectifying the error. On receipt of such petitions the field officers are directed to inspect the property and thus details are gathered. After the spot inspection, final notice is issued, taking into consideration of the inspection report; the tax is collected form the assessee. This is the cycle process going on in Revenue Department and the petitions are disposed then and there and only in such cases where difficulties arise in getting the details of the assessment it takes time to dispose of such petitions.



g. It was pointed out that the CoC is taking more care and adopting new methods to contact the Resident Welfare Association to collect the property tax and the system works well in terms of collection and the petitions of property tax grievances are also disposed in time without much delay.

2. Water and drainage tax


1. A tax for general purpose

HYDERABAD



3 Lighting tax

4. Scavenging tax

41%

0%

32%

27%

PT Octroi Other Tax Receipts Non Tax Receipts

39%61%

PT

Other Rev. Rect. (Tot. Rev. Rect. - PT)

2. Monitoring the performance of collection staff by conducting weekly review meetings.


5. Legal Case Management system.6. Online Payment of Dues.

1. Computerisation of all property tax assessments.

4. Service of demand notices and legal notices on defaulters- section 268 of HMC act.


3. Rewarding highest tax collectors through incentive awards and merit certificates.

Growth in Assessed Properties

Per Capita Property TaxGrowth in PT Collected

41%

0%

32%

27%


39%61%

PT

Other Rev. Rect. (Tot. Rev. Rect. - PT)

200

210

220

230

240

250

2000-01 2005-06

243.21249.59

0

50

100

150

200

2000-01 2005-06

86.68

174.43

Prop

erty

Tax

(in C

rore

s)

2

4

6

8

10

2000-01 2005-06

4.835.28

Asse

ssed

Pro

pert

ies

(in L

akhs

)

0.0010.0020.0030.0040.0050.0060.0070.0080.0090.00

100.00

2002-03 2003-04 2004-05 2005-06

90.45

71.47 73.25 72.74

Col

lect

ion

Effic

ienc

y (

%)



6.0 Greater Hyderabad Municipal Corporation

6.1 Introduction In 1956, Hyderabad became capital of Andhra Pradesh after the state was formed. From 1956 to March 2007, it had undergone many changes. In 1960, the budget of the Corporation was 1.5 crores and it has risen to more than 1000 Crores by 2007-08.

From April 2007 onwards it became Greater Hyderabad Municipal Corporation based on notification released on 16th April 2007 by state Government of Andhra Pradesh. The city was divided into (5) Zones (including North, South, Central, East and West) and 17 circles to provide better services and the city has now grown from 175 sq.km to 625 sq.km. It has merged 12 municipalities viz., L.B.Nagar, Malkajgiri, Outhbullapur, Patancheru, Gaddiannaram, Kapra, Kukatpally, Ramachandrapuram, Uppal Kalan, Alwal, Serilingampalli & Rajendranagar

6.2 City Profile Hyderabad is currently ranked as the sixth largest urban agglomeration in the country. Covering an area of 625 sq. kms, the present population is over 75 lakhs. It is not only the administrative capital, but also the economic and financial capital of Andhra Pradesh. It is the largest contributor to the state’s GDP, state taxes and excise revenues; the urban economic profile of the economy is undergoing a transformation in the recent years with the service industry playing a major role in the economic development of Hyderabad.

Table 6.1: Present Scenario of Greater Hyderabad Municipal Corporation

Area 625 Sq. Kms. Population Above 75 lakhs No. of Slums 1487 No. of Notified Slums 1170 No. of Non-Notified Slums 340 No. of Zones 5 No. of Circles 18 No. Divisions 150

Source: Greater Hyderabad Municipal Corporation

6.3 Urban Governance Greater Hyderabad Municipal Corporation has been formed from the earlier Municipal Corporation of Hyderabad (MCH) by adding 12 surrounding municipalities’ w.e.f 16-04-2007. It is divided into 5 taxation zones (south, central, east, west and north) for the assessment of Property tax, which is further divided into 18 circles, which is again subdivided into taxation main zones and sub zones (Table 6.1). The Corporation discharge all the 23 obligatory and 40 discretionary duties mentioned in ‘The Hyderabad Municipal Corporation Act, 1955’ along with Act No. 14 of 2005. The respective functions of the several Municipal authorities shall be such as are specifically provided under this act or the rules or byelaws made there under. Besides, it provides for anti-rabies treatment and the maintenance of lunatic asylums.



Table 6.2: Taxation Zones

Zone Code Zone Name Taxation

Main Zones Taxation Sub-Zones Zone Head Quarter

1 EAST ZONE 115

344

L.B.NAGAR MPL.OFFICE 2 SOUTH ZONE SARDAR MAHAL CHARMINAR 3 CENTRAL

ZONE ABIDS MPL.OFFICE

4 WEST ZONE SERILINGAMPALLY MPL.OFFICE 5 NORTH ZONE SECUNDERABAD OFFICE


6.4 Administrative set-up of Property Tax Department The department is headed by the Additional Commissioner (Finance) and assisted by 18 Deputy Commissioners in each circle and a Chief Valuation Officer (HQ). Under them 18 Assistant Commissioners and 15 Valuation Officers are assisted by Tax Inspectors or Revenue Inspectors as also Billing Clerks who complete the administrative set-up of the department.

Administrative set-up of the Property Tax Department in the Hyderabad Municipal Corporation is as follows:

Figure 6.1: Organisational Structure, Property Tax Department, GHMC

6.4.1 Structure of Property Tax

Under section 199, property taxes of what to consist and at what rate leviable: -

1) The following taxes shall subject to exception, limitations, and conditions herein provided be levied on buildings and lands in the city and shall hereinafter be referred to as property taxes namely: i) General tax, ii) Water tax, iii) Drainage tax, iv) Lighting tax & v) Conservancy tax.

Additional Commissioner, Finance

DMCs (18)

AMCs (18)

T.I/R.I (110)

CVO – HO (1)

VOs (15)



2) Save as otherwise provided in this act these taxes shall be levied at such percentages of their ratable values as may be fixed by the Corporation:

Provided that the aggregate of the percentages so fixed shall not in the case of any land or building be less than 15 percent or greater than 30 percent. The property tax in respect of residential properties is calculated and levied in surrounding municipalities under section 85 of A.P. Municipalities Act being erstwhile municipalities.

6.4.2 Under Section 85, levy of property tax: -

1. Where the council by resolution determines that a property tax shall be levied, such tax shall be levied on all buildings and lands within the municipal limits save those exempted by or under this act or any other law. The property tax may comprise-

A tax for general purpose;

Water and drainage tax

Lighting tax

Scavenging tax

2. “Provided further that the percentage of the property tax fixed under this sub-section shall be such that the incidence of property tax together with the education tax and library cess levied under the relevant laws, shall not exceed twenty five percent of the annual rental value in the case of residential buildings and thirty three percent of the annual rental value in the case of non-residential buildings”

6.5 Overview of Finances The Corporation’s revenues are both from internal and external sources. Internal sources consist of revenue accrued by the GHMC on its own, and external sources consist of revenue from other sources such as grants and loans from the Central as well as the State Government. Although, in the following table there is no description of any grants or transfer.

Table 6.3: Municipal Revenue Receipts (Rs in Lakhs)

Description Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

A. Tax Receipts (i+ii+iii) 17299.79 (67.28)

21438.42 (74.37)

27935.00 (79.25)

29727.71 (72.77)

27853.70 (69.70)

30963.91 (69.41)

i) Property Tax Receipts 8668.92 (33.72)

12219.33 (42.39)

15197.07 (43.12)

16453.46 (40.28)

15820.70 (39.59)

17443.44 (39.11)

ii) Octroi 41.92 (0.16)

41.92 (0.15)

44.64 (0.12)

37.50 (0.09)

50.00 (0.12)

30.00 (0.06)

iii) Other Tax Receipts 8588.95 (33.40)

9177.17 (31.83)

12693.29 (36.01)

13236.75 (32.40)

11983.00 (29.99)

13490.47 (30.24)

B. Non-Tax Receipts 6960.00 (27.07)

6281.44 (21.79)

6638.08 (18.83)

7561.81 (18.51)

9734.05 (24.35)

11183.45 (25.07)

C. State Grants/Transfer - - - - - -



Description Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

D. Other Revenue Receipts

1454.11 (5.65)

1104.97 (3.83)

673.43 (1.91)

3559.01 (8.71)

2374.40 (5.94)

2458.84 5.51)

E. Total Revenue Receipts (A+B+C+D)

25713.90 (100.00)

28824.83 (100.00)

35246.51 (100.00)

40848.53 (100.00)

39962.15 (100.00)

44606.20 (100.00)


(Figures mentioned in the parenthesis refer percentage to total revenue income.)

An overview of GHMC finances has been depicted in the above Table. It may be seen from the table that the revenue generated through the Octroi was almost negligible while the PT receipts have been the major components of the total municipal revenue during last six years (from 2000-01 to 2005-06). Amongst all revenue receipts, the percentage of PT varied between 33 to 43 percent in the said years. The trend of the PT income depicts the gradual increase year by year but the percentage share of the PT is not keeping the pace with it despite the increase in the total collection of the PT. The revenue receipts of GHMC broadly comprise of tax receipts, non-tax receipts, State Government Transfers, Central Finance Transfers and others. However, the Property Tax receipts include General Tax, Conservancy Tax, Lighting Tax and Drainage Tax.

6.6 Demand and Collection Table 6.4: Demand and Collection (Rs in Lakh)

Year Demand Collection Arrears New Demand

for the Year Total Demand

Arrears New Collection for the Year

Total Collection

2000-01 2887.78 9006.80 11894.58 2634.12 6146.27 8780.39 2001-02 5494.40 9420.96 14915.36 3901.06 9102.48 13003.54 2002-03 5869.41 11073.16 16942.57 4597.33 10727.10 15324.43 2003-04 3807.59 18698.34 22505.93 4825.63 11259.79 16085.42 2004-05 8727.91 13988.74 22716.65 4992.20 11648.46 16640.66 2005-06 9647.50 16088.19 25735.69 5615.98 13103.96 18719.94


The information obtained from the Hyderabad Municipal Corporation on Demand and Collection for the period of 2000-01 to 2005-06 reveals that there is steady increase both in terms of Demand and Collection for the last six years.

In general, the PT collection would be spent for providing basic civic amenities and infrastructure development for the betterment of people, keeping in mind the basic purpose of the enhancement such as: to evolve a scientific method in the assessment and levy of property tax, to fix the assessments uniformly for similar buildings used for similar purposes and situated in the same locality, to reduce the element of discretion and to avoid arbitrariness in the assessment of tax and also to simplify the procedure of assessment and to make it transparent and citizen friendly.

6.7 Tax System Property tax is the main source of income of GHMC and is levied and collected on all the lands and buildings within the municipal corporation limits as laid down under Section 197 and 199 of HMC Act, 1955 (Hyderabad Act –II of 1955). The slab rates of taxation are being adopted only in



respect of residential buildings w.e.f 1-4-1982, while non-residential buildings are being levied at the flat rate of 30% of the Annual Rental Value (ARV) in respect of their slab rates. As per Section 264 0f HMC Act, Property Tax shall be payable on half yearly basis. The scheme of self-assessment of property tax was introduced during the year 1999-2000. The information is self-assessment form is called as a written return based on the requisition made by the Commissioner, under Section 213 of the HMC Act of 1955. As per G.O dated 27-8-2007, GHMC has initiated the process of revision of property tax on non-residential buildings w.e.f 1-10-2007. For residential buildings, an elaborate procedure of determination of Annual Rental Value and assessment of Property tax is in vogue vide G.O issued on 20-11-2006. The ARV is determined on the basis of 10 parameters that, among others, include nature of usage, classification based on type of construction etc. However, the new system of tax envisages fixation of ARV based on location, type of construction, nature of use, plinth area and age of building, at 20% of ARV.

Table 6.5: Composition of Property Tax

Range of Annual Rental Value

General Tax

Conservancy Tax

Lighting Tax Drainage Tax

Total

Upto Rs. 600/- Exempted from payment of property tax Rs. 601-1200/- 2% 9% 3% 3% 17% Rs. 1201-2400/- 4% 9% 3% 3% 19% Rs. 2401-3600/- 7% 9% 3% 3% 22% Above Rs. 3600/- 15% 9% 3% 3% 30%


The above slab rates are in vogue from 01-04-1974 under section 197 & 199 (2) of the HMC Act, 1955 graded slab rates of taxation are being adopted only in respect of residential buildings with effect from 01-04-1982, while non-residential buildings are being taxed at a flat rate of 30% of the Annual Rental Value (ARV) irrespective of their slab.

The following table shows the year wise details on the number of properties taxed:

Table 6.6: Number of Properties


6.7.1 Assessment of Vacant Land Tax

In the erstwhile MCH, the open land tax is being levied @ 0.5% based on the market value of the land located in respective areas.

Year Number of Assessed Properties

Number of properties taxed at the beginning of the Financial Year

New properties added to the tax register during the year

2000-01 - - - 2001-02 406316 404829 1487 2002-03 467819 451977 15842 2003-04 485602 464959 20643 2004-05 507022 486322 20700 2005-06 528062 507307 20755



Taxes will be levied relatively based on infrastructure facilities and commercial importance basis. Parity will be achieved gradually among the zones.

While adding the 12 surrounding municipalities, the erstwhile MCH has been formed as Greater Hyderabad Municipal Corporation w.e.f. 16-04-2007.

6.7.2 Self Assessment System

General revision of Property Tax as contemplated under HMC Act, 1955 was not done in the then MCH for the past few decades. In the absence of this, property owners continued to pay taxes as levied decades ago causing heavy financial loss to the then MCH. The highest property tax collection of Rs. 58 crores was made during the year 1998-1999. Attempts to revise and improve the property tax base made earlier were caught in legal problems.

Keeping the above points in view, the scheme of self-assessment of property tax was introduced during the year 1999-2000. This scheme was introduced by taking the advantage of provisions under section 213 of HMC Act in which Commissioner is empowered to call for information pertaining to the property from owners/occupiers. The information in self-assessment form is called as a “Written Return” based on the requisition made by the Commissioner, under section 213 of HMC act 1955. The Return is to be filed with the signature of the owner of occupier of property.

To ensure complete transparency and openness in levy and collection of Property Tax and to enable citizens/Taxpayers to understand the basis of taxation and to calculate the tax by themselves.

To build a computerized Property Tax Data Base with each property in the twin cities by assigning a unique property tax identification number, (PTIN) so as to enable the tax payers to have information of their property tax online and to pay property tax at any e-seva centers/citizen service centers/circle offices.

Bench marking at rate per sq.ft. Both for residential and non-residential properties to eliminate discretion in the levy and collection of tax and to avoid questionable intention and harassment.

To minimize prolonged disputes between taxpayers and MCH, pending since 10-15 years.

To establish a healthy relationship between MCH and Tax Payers/Residential welfare associations.

To link services with tax payment so that tax payers get value for money (Quality services) and also feel proud of contributing their mite to the development of their own city.

To assist their fellow citizens living in slums and poor localities, to gain access to basic civic amenities.

6.7.3 Introduction of Area Based Unit Rate System

As per the orders issued in 27-08-2007, Greater Hyderabad Municipal Corporation (GHMC) has initiated the process of revision of property tax on non-residential buildings w.e.f. 01-10-2007.



The earlier Draft Notification published in Ex-ordinary A.P. Gazette dated 26-09-07 and gist of the notification published in the news papers on 28-09-07 were rescinded on administrative grounds vide notification dated 22-12-07. A fresh draft notification published in Hyderabad District Gazette dated 26th, December 2007 by GHMC, proposing monthly rent per sq. ft. of plinth area in respect of non-residential buildings duly calling for objections and suggestions from the public in this matter.

The gist of draft notification was published in the newspapers and objections and suggestions were received from the public. After thorough consideration of objections and suggestions received from the tax payers and various associations, final notification showing the division of GHMC into tax zones and monthly rent per sq. ft. of plinth area for various types of construction and usages of buildings in respect of Non-Residential Buildings is published in Hyderabad District Gazette vide No. 21, dt; 29th January, 2008.

6.7.4 Elaborate Procedure for Assessment

Sections 197 to 238 and Sections 264 to 289 of the Hyderabad Municipal Corporations Act, 1955 and the Hyderabad Municipal Corporations (Assessment of Property Tax) Rules, 1990 as amended on 20-11-2006 has provided an elaborate procedure for determination of Annual Rental Value and Assessment of Property Tax as detailed hereunder:

a. Division of Municipal Corporation into Territorial Zones.

b. Classification of buildings based on construction: 6 categories

c. Further classification of buildings based on nature of usage: 22 categories.

d. Gathering of prevailing Rental Value of 20 per cent of Rented Buildings – arriving at Average Monthly Rental Value (MRV) for each category of building to be fixed per sq.ft of Plinth Area in each zone.

e. Issue of draft notification indicating MRV per sq.ft of Plinth Area in respect of various categories of all buildings for all zones and calling for objections and suggestions from the public.

f. Issue of final notification indicating MRV per sq.ft of Plinth Area in respect of various categories of buildings for all zones after considering objections and suggestions.

g. Preparation of Assessment list of buildings gathering, among others, plinth area, nature of construction, nature of usage for all buildings.

h. Calculation of property tax and preparation of special notices

i. Service of special notices.

j. Disposal of complaint petitions.

6.7.5 Factors for Determination of Annual Rental Value

1. Location of building

2. Type of construction



3. Nature of use

4. Plinth area

5. Age of building

6.7.6 Rate and Revision of Non-Residential Property Tax

Property tax is levied 30% on Annual Rental Value (ARV) of Non-residential buildings.

The Government, vide G.O. Ms. No.635, dt: 27-08-2007 has issued orders for revision of property tax on non-residential properties to come into force with effect from 01-10-2007 which has issued orders restricting the hike of property tax to 50% on existing tax on 30-09-2007. The revised property tax on non-residential properties has come into force w.e.f. 01-10-2007.

Accordingly, one GHMC has taken steps for Revision of Tax subject to the provisions and instruction of the Government and certain rates have been notified for Revision based on the 20% rental value gathered through GIS survey.

The GHMC has been divided into 5 territorial zones and 115 property zones and further divided into 344 sub-zones. The non-residential properties for the convenience of the revision of property tax is classified into 6 major types based on the constructions and 21 categories of usages based on the non-residential type usage.

Based on the area development the rates are proposed and a gist of notification showing minimum and maximum rate for each category and type of usage was published.

6.7.7 Concession/Exemptions:

The GHMC announced a unique programme of honoring the prompt and honest taxpayers with attractive incentives and cash prizes without spending any amount from GHMC funds. The cash prizes’ amounting to Rs. 10.00 lakhs is sponsored by State Bank of Hyderabad. This year also an amount of Rs. 10.00 lakhs was sanctioned for the purpose by SBH. At circle level, the Deputy Commissioners are conducting programmes to honour the prompt and honest taxpayers. The exemptions are allowed within the provisions of HMC Act Corporation as a whole and not locality wise. The following exemptions/concessions U/s 202 are allowed as per HMC Act.

100% exemption for the properties occupied by Ex-servicemen.

50% vacancy remission would be granted for vacant premises on field report by the Tax Inspector.

100% exemption for religious places of worships/charitable institutions/education institutions U/s 202 (b) (Upto Xth class)

The Government may exempt any residential building occupied by the owner from the property tax where the annual rental value of the same does not exceed Rs. 600.

Rebates/concessions in payment of property tax.



Dispute redressal mechanism: It works efficiently in GHMC (fully online service) and depending on the nature of complains is addressed within 24hrs to 7 days. GHMC has a unique programme of honoring prompt and honest taxpayers through attractive cash awards from lucky draw conducted in every circle/zone. State Bank of Hyderabad sponsors this award. 2% penalty per month is imposed on defaulters.

6.8 Issues and Reforms Some of the major reforms taken up by Corporation in improvement of Property Tax are:

Billing is fully computerized and collection is made through e-Sewa, AP Online, Debit/Credit Card and Citizen Service Centres.

Computerisation of all property tax assessments.

Identification of un-assessed properties as well as under-assessed properties.

Computerisation of Demand Bills.

Fixing daily targets locality wise on collection staff

Monitoring the performance of Collection staff by conducting weekly review meetings.

Rewarding highest tax collectors through incentive awards and merit certificates etc.

6.8.1 Other Reforms:

Computerization of all property tax assessments.

Introduction of self-assessment scheme.

Identification of un-assessed properties and bring them to tax net.

Identification of under-assessed properties and their rationalization.

Identification of properties where there is a change in usage i.e. from residential to non-residential and their rationalization.

Collection of tax through self-assessment system.

Linking of property tax database to e-Seva Centers/citizen

Service centers/Circle offices.

Computerization of Demand Bills.

Serving of Demand Bills through courier agencies/postal department.

Making wide publicity for payment of taxes.

Facilitating for payment of property tax through e-seva centers, citizens’ service centers, GHMC circle offices AP on line services delivery points, SBH Branch offices Debit interface/credit card and collection staff.

Serving of Demand Notices on defaulters.

Issue of Legal Notices to defaulters



Issue of Legal Notices for realization of bounced cheques.

Issue of warrants and attachment of movable properties of defaulters.

Collection of penal interest @ 2% per month on belated payments.

Fixing daily targets locality wise on collection staff.

Monitoring the performance of collection staff by conducting weekly review meetings.

Rewarding highest tax collectors through incentive awards and merit certificates.

Service of Demand Notices and legal notices on defaulters-section 268 of HMC Act.

Execution of warrants of distress and seizing of movable articles and put them to auction for realization of tax dues under section 269 of HMC Act.

Filing of suits for recovery of tax dues under section 278 of HMC Act.

INDORE


1. Vyapak Swacchta Kar (Sanitation Tax) 2. Education Cess 3. Drainage Tax 4. Water Cess 5. Consolidated Tax 6. Service Charges



25%

75%


43%

45%

2% 10%


5. IMC draws lottery for Tax payers who pay PT in advance.

3. Ahillya Samadhan Shivir in each zone to rectify the PT related issues/problems.4. Awards are given to IMC officials who achieve the target.

1. IMC introduces the ALV based Self Assessment (SA) method, which replaced the old ARV based Assessment method.2. Computerisation of PT records- The Real Time Transmission System enables the owners to make online payment of PT and get the receipt at the same time.





25%

75%


43%

45%

2% 10%


100120140160180200220240260280300

2003-04 2007-08

260.68295.27

0

10

20

30

40

50

60

2003-04 2007-08

41.63

54.30

Prop

erty

Tax

(in

C

rore

s)

0

2

4

6

8

10

2003-04 2007-08

1.52

3.57

Asse

ssed

Pro

pert

ies

(in L

akhs

)

0.00

5.00

10.00

15.00

20.00

25.00

2004-05 2005-06 2006-07 2007-08

19.7021.68

20.48 18.87

Col

lect

ion

Effic

ienc

y (

%)



7.0 Indore Municipal Corporation

7.1 Introduction In the Malwa region of Central India, Indore is a large commercial / business capital of the Central Indian state of Madhya Pradesh. Moreover, it is the administrative headquarters of the Indore Districts and the Indore Division. It formerly served as the capital of the former princely state of Indore and summer capital of the erstwhile state of Madhya Bharat. It is situated on the Malwa Plateau, just south of Satpura Range.

7.2 City Profile Currently Indore is the largest city in Madhya Pradesh having a population of 1835915 (as per 2001 Census report). The area of Indore is 165.17 sq. km of which 130.17 sq. km is in the jurisdiction of Indore Municipal Corporation (IMC). It has a density of 471 people per sq. km. Its literacy rate recorded as 54.95%, a little less than the national average of 59.5%. The male literacy rate is 64.85%, which is higher than the female literacy rate (44.03%). The city of Indore is having a mixed cultural background with strong traces of the Malwa influence. Most of the people of Indore converse mainly in Marathi and are also proficient in English, Hindi, and Gujarati.

7.3 Urban Governance In order to provide essential civic infrastructure facilities in Indore, the Indore Municipal Corporation / Municipal Corporation of Indore (IMC) was established under section 7 of the Madhya Pradesh Municipal Corporation Act, 1956. It aims at building the city that should incorporate all necessary amenities required by the citizens. Its obligatory functions are: water supply; public lighting; construction and maintenance of public streets, culverts, markets, latrines, urinals, drains, sewer; cleaning public streets and sewers; disposing night soil and garbage; removing obstructions and encroachments; maintaining public gardens, recreation, public places, open space; maintaining public monuments and other municipal property; prevention and control of infectious diseases; fire fighting; regulating public markets and slaughter houses; maintaining cremation and burial grounds; public vaccinations; naming and numbering of streets and houses; registering births, deaths and marriages and traffic signs. Besides these obligatory functions, IMC has some discretionary functions, such as census; surveys; planting road-side and other trees; constructing and maintaining public gardens and buildings; organizing fairs, exhibitions, competitions, tournaments; designing the layout of new areas and streets; destruction or detention of stray dogs and pigs; urban forestry, protection of the ecology, urban poverty alleviation etc. Amongst the aforesaid functions, IMC has six core functions – water supply, construction and maintenance of roads, sanitation and conservancy, sewerage, drainage and street lighting.

The Indore Municipal Corporation comprises a body of elected representatives, which is called as Council and each ward elect one person to the Council. In the Act, the number of wards, for any Municipal Corporation, has been fixed between 40 and 70. The whole city of Indore has been divided into 69 wards, which have further been grouped into 12 zones for administrative and service providing purposes. These zones work as mini municipalities. In other words, one can say



that the Corporation has been decentralizing at zonal level. However, major decisions / sanctions are taken at the Corporation level. The Mayor is the Chairperson of the Council and is elected through direct voting by all citizens of the municipal area of the city. A body of 10 members, the Mayor-in-Council, is appointed by the Mayor and acts as the Advisory Committee of the Corporation. The Mayor, who is assisted by a group of nine councilors, heads this committee.

The Indore Municipal Corporation has six main departments, viz. Accounts, Revenue, Public Works, Water and drainage, Health, Stores and Workshops departments.

Revenue Department is one of the important departments of the Corporation. The Revenue Department collects the bulk of all taxes, charges and fees for the Corporation. The biggest section in this department is that of Property Tax. Besides, this, it has small sections viz. sections for Licensing, Shop Rent, Water Charges, Entry Tax, Advertisement Tax, Show Tax and Shack and Cart Rent. The head of the Revenue Department is the Chief Revenue Officer who is the rank of Deputy Commissioner In the Revenue Department; there are one Assessment and Survey Officer and one Revenue Officer (for collection of taxes) who work under the Deputy Commissioner. They are assisted by the Assistant Revenue Officers (one from each zone) who are responsible for the revenue related functions in the zones. However, Sub-Inspectors and 69 Bill Collectors support these 12 Assistant Revenue Officers.

Figure7.1: Organisational Structure, Property Tax Department, IMC

Chief Revenue Officer

Assessment Officer Survey Officer Revenue Officer

Assistant Revenue Officer

Sub Inspectors Bill Collectors

Assistant Revenue Officer Assistant Revenue

Officer

Sub InspectorsSub Inspectors

Bill Collectors Bill Collectors



The main section of the Revenue Department is of Property Tax (PT). Besides the PT Section, there are other small sections, like, sections for Licensing, Shop Rent, Water Charges, Entry Tax, Advertisement Tax, Show Tax and Shack and Cart Rent.

7.4 Overview of Finances The moneys received by IMC from the disposal of properties, rents, tax receipts, fees, fines, interests, profits and loans are credited to Municipal Fund. The money credited in the fund are applied in the repayments of loans and discharge of liabilities and lastly in the payment of all sums, charges and costs for carrying out the obligatory and discretionary functions of IMC.

The revenue receipts of IMC broadly comprise of tax receipts, non-tax receipts, State Government Transfers, Central Finance Transfers and others. However, the tax receipts includes Property Tax, Advertisement Tax, Show Tax, Drainage Tax, Consolidated Tax etc. Non –Tax receipts of IMC comprises of Water Charges, Rent from Shops and Buildings, Bar Licenses, Fee for Building Construction Permissions, Construction Patri Fee, Fee for Block Development Charges, Private Colony Supervision Fee etc.

The revenue expenditure on key functions of IMC can be classified as Administration & Tax Collection; Public Health; Public Safety; Water Supply; Sewerage; Road Cleaning and Solid Waste Management; Gardens, Museums, Grounds etc.; Public Constructions; Loan Charges etc. Transfer from revenue accounts; State Government transfers on capital account; JNNURM grants; institutional loans etc. comprise the Capital Receipts. It is difficult to classify the Capital Expenditure due to the inconsistent recurring/ non-recurring/capital expenses in past many years.

An overview of IMC finances has been depicted in Table 7.1. It may be seen from the table that the State transfers for Octroi compensation and PT receipts have been the major components of the total municipal revenue during last five years (from 2003-04 to 2007-08). Amongst all revenue receipts, the percentage of PT varied between 24 to 29 percent in the said years. The percentage of PT to its own revenue recorded above 45 percent and touched 71 percent and 79 percent in the year 2004-05 and 2005-06, respectively (Table 7.1).



Table 7.1: Financial Statement of the Indore Municipal Corporation (Rs. in Crores)

Description 2003-04 2004-05 2005-06 2006-07 2007-08 (a) Tax Receipts i. Property Tax Receipts 41.63

(26.77) 40.68 (25.43)

49.15 (29.40)

51.22 (24.03)

54.30 (24.72)

ii. Octroi Compensation 55.65 (35.79)

71.48 (44.68)

62.52 (37.40)

64.84 (30.43)

57.31 (26.09)

iii. Other Tax Receipts 0.75 (0.48)

1.29 (0.81)

1.45 (0.87)

2.54 (1.19)

3.33 (1.52)

(b) Non-Tax Receipts 2.64 (1.70)

2.55 (1.59)

3.21 (1.92)

11.08 (5.20)

12.32 (5.61)

(c). State Grants / Transfers 21.67 (13.94)

31.59 (19.74)

42.10 (25.19)

34.16 (16.03)

41.10 (18.71)

(d) Other Revenue Receipts 33.15 (21.32)

12.41 (7.76)

8.72 (5.22)

49.27 (23.12)

51.31 (23.36)

Total Revenue Receipts (a+b+c+d) 155.49 (100.00)

160.00 (100.00)

167.15 (100.00)

213.11 (100.00)

219.67 (100.00)

Capital Receipts - 69.24 58.30 124.02 -

Total Income of Corporation - 229.24 225.45 337.13 Total Revenue Expenditure - 148.75 150.73 294.06 - Capital Expenditure - 79.84 73.22 170.69 - Total Expenditure of Corporation - 228.59 223.93 464.75 - Revenue Surplus/ Deficit - 11.25

7.56% 16.42 10.89%

- 80.95 27.53%

-

Net Surplus/Deficit - 0.65 0.28%

1.5 0.67%

-127.62 -27.46

Source: Indore Municipal Corporation

Table 7.2: Percentage of Property Tax (PT) to the Own Source of Revenue and to Total Municipal

Revenue Receipts (Rs. in Crores)

Indicators 2003-04 2004-05 2005-06 2006-07 2007-08 Property Tax Receipts 41.63

40.68

49.15

51.22

54.30

Revenue from Own Sources 78.17 56.93 62.53 114.11 127.26

Total Revenue Receipts 155.49

160.00

167.15

213.11

219.67

Percentage of PT to Own Sources of Revenue

53.26 71.46 78.60 44.89 42.66

Percentage of PT to Total Revenue Receipts

26.77

25.43

29.40

24.03

24.72

Source: Indore Municipal Corporation.

Note: Revenue from Own Sources has been derived by adding Tax Receipts, Other Tax Receipts and Non-tax Receipts

The above analysis indicates that Property tax is one of the major sources of IMC revenue. The number of properties assessed for the purpose of PT, in the 2007-08, was 357152. The assessment



work of new properties has been in progress for last many years (Annex-I). These efforts indicate that IMC know the importance of PT on revenue generation, i.e. the increase in PT receipts reduces the dependency of the Corporation on State Government Grants.

7.5 Property Tax System

7.5.1 Structure

The tax from properties comprises of:

Property Tax - 6-10% of taxable ALV; 10-30 percent deductions are allowed in ALV (depending upon the age of property) to determine taxable ALV, 50% rebate in PT allowed for residential self-occupied properties;

Vyapak Swacchta Kar (Sanitation Tax) - 50 % of PT; 50% of PT rebate payable before

allowance of 50% rebate for residential self occupied properties;

Education Cess - 20% of ALV;

Drainage Tax - 20% of PT;

Water Cess – 10% of PT:

Consolidated Tax;

Service Charges – Rs.10/- flat rate.

7.5.2 Assessment System

The Property Tax system in IMC was based on Annual Rateable Value (ARV) prior to 1997. ARV was generally defined as ‘ the amount of annual rent for which the land or building might reasonably be expected to let from year to year’. In this regard, there were no clear-cut guidelines on how to calculate or measure the ‘ for which the land or building might reasonably be expected to let”. Moreover, the definition of ARV was not precise, as in case where the property was rented out; the actual rent paid (sometimes known as Standard Rent) was taken as ARV. It created lot of confusions and led to many conflicting court judgments whether the Standard Rent would be binding on the assessor or if the assessor was free to make valuation on the basis of reasonable rent, which was hypothetical, and the tenant would pay. Hence the assessment of PT on the basis of ARV resulted into malpractices in assessing the rents in many cases.

Besides the above, there was a major role of the Bill Collectors in assessing and collecting the property tax. The Bill Collectors were required to visit each property, measure it, assess its ARV and present a bill to the owner of the property. They used to collect the tax from the owner of the property on behalf of the Corporation This system created a number of problems / issues related to wrong or under assessment of the properties.

In order to avoid the shortcomings of the aforesaid system, the Indore Municipal Corporation shifted to a zone based ‘Self Assessment’ (SA) system w.e.f. 1.4.1997. This shifting to SA system was also introduced in all the Municipal Corporations of Madhya Pradesh through the



amendment of MP Municipal Corporation Act, 1956. The earlier system of assessing the PT was based on the ARV while this system is based on the Annual Letting Value, which is based on Unit Area

As per Section 132 (a) of the Madhya Pradesh Municipal Corporation Act, 1956, a tax payable by the owners of buildings or lands situated within the city with reference to gross ALV of the buildings or lands, called the property tax, subject to the provisions of Section 135, 136 and 138. According to rule 3 of the M.P. Municipality (Determination of Annual Letting Value of building/land) Rules, 1997, the Indore city has been divided into six PT rates zones on the basis of, as far as possible, similar location of buildings and lands (per square foot prevailing market value) situated therein. IMC has fixed separate rates for each type of houses and lands situated in each zone on the basis of their quality of construction, type of use, age of building and location for the purpose of the determination of ALV. Under clause (a) of sub-section (1) of Section 132 of the Act, the Property Tax shall be charged, levied and paid, at the rate not less than six percent and not more than ten percent of the ALV, as may be determined by the Corporation. The Indore Municipal Corporation has fixed the following tax rates for charging PT:

ALV (Rs.) Tax Rate

- Rs.12000/- Exempted

- Rs. 12000 – 36000 6%

- Rs. 36000 – 60000 8%

- Rs. 60000 + 10%

The zone wise ALVs per square foot, on different types of properties (types of construction, use of property - residential or non- residential) has been fixed by IMC

Under Rule 10 of M. P. Municipalities (Building/land) Rules, 1997, the owner of the property is required to calculate the ALV of his property and the amount of PT as per rates of letting value described in resolution published by the municipality as per provisions of rule 8 and by adding the amount of water tax and the consolidated amount of general sanitary cess, general lighting tax and general fire tax as determined under sub-sections (4) and (6) of section 132 in case of Municipal Corporation.

Thus, in the existing self assessment system, the owner of the property has to fill up a Return for the Self Assessment of Property Tax, Rule 10 (1), which has many parameters, viz. area, location, type of construction, use of property etc. The ALV for a particular property is derived by multiplying the built up area with zonal rate (standard assessment rate) for that particular zone.

Various deductions/ exemptions are also taken into consideration to achieve the taxable ALV.A rebate of 20% or 30% is given on those properties, which have been constructed before 1980 or 1960. These rebates are given only on producing relevant documents otherwise 10 % of rebate is given. The details of these rebates have been given in the Self Assessment Form.



PT is worked out on the basis of tax rates assigned to different ALV slabs. Other taxes or cess which are collected in conjunction of PT, as mentioned earlier, are added to the Property Tax amount and thus the total amount is payable to the owner of the property.


In the earlier system, the PT was recovered by presenting a bill where Bill collectors used to go to the field, assess the tax and collect them on the spot. Now, the tax is self assessed by the owner of the property and the Corporation no longer assesses the tax or presents the bills to property owners. The main office of the Corporation and all zonal offices are equipped with cash collection counters to collect taxes, fees and charges. Besides these collection counters, there are mobile collection vans. Moreover, the revenue records, which were computerized in 1999, have largely reduced the task of clerks associated with the record keeping and billing. This computerization was done in two phases – Phase I started 1999 and ended in 2001. However, the Phase II started in 2002 and ended by 2005-06. In the first phase, each module of computerization, viz. Property Tax, Water Charges etc, was stand- alone system without having any link to any other module. While in Phase II all these module were integrated with each other. Now most of the records are updated on a ‘near real time’ or on line basis. This real time transmission system has been decentralized up to zonal level. Moreover, by introducing this system, one can see his tax related details, can make the payment of PT on line from any city of India and collect the receipt at the same time. In addition to this, the efforts made in Phase II have increased the efficiency in the interface between IMC and the citizens of the city through tools, viz. query and complaint terminals.

The impact of the above mentioned system might reflect in the collection efficiency of the property tax. For this, a look at the demand and collection of the PT, over the last many years, is required. The details of demand and collection of the property tax of IMC, for last five years, have been given in Table 3. It is surprising to note from the table that the collection efficiency has not increased during last five years despite of adopting self-assessment method and the computerization of the tax collection system. It may be noted that the demand of PT has increased consistently during the period of five years. The collection of property tax has not increased consistently during the said period.



Table 7.3: Demand and Collection of Property Tax, 2003-04 to 2007-08

(Rs. in crores)

Year Demand/Target Collection Collection Efficiency (on total demand)

Collection Efficiency (on current demand)

2003-04 175.31 41.63 23.75 51.64 2004-05 206.50 40.68 19.70 42.05 2005-06 226.74 49.15 21.68 40.61 2006-07 250.07 51.22 20.48 - 2007-08 287.75 54.30 18.87 -

Source: Indore Municipal Corporation.

Note: The collection efficiency has been worked out with total demand and collection figures due to unavailability of arrear data for collection figures in 2006-07 and 2007-08.The efficiency for current demand in 2004-05 and 2005-06 was 42.05% and 40.61% respectively.

7.5.4 Properties Exempted from Property Tax

As per Section 136 of the Madhya Pradesh Municipal Corporation Act, 1956, following properties have been exempted from the Property Tax1:

a) Buildings and lands owned by or vesting in the Union Government; the State Government and the Corporations;

b) Buildings and lands used exclusively for educational purposes including schools, boarding houses, hostels and libraries;

c) Public parks and play grounds which are open to public and building and land attached thereto if the rent derived there from is exclusively spent for the administration of parks and playgrounds to which they are attached;

d) Buildings and lands or portions thereof used exclusively for public worship or public charity such as mosques, temples, churches, dharamshalas, gurdwaras, hospitals, dispensaries, orphanages, alms houses, drinking water fountains, infirmaries for the treatment and care of animals and public burial grounds, or other places for the disposal of dead;

e) Buildings and lands owned by widows and minors or persons subject to physical disability or mental infirmity owing to which they are incapable of earning their livelihood, where the main source of maintenance of such widows or minors or persons is the rent derived from such buildings and lands;

f) Buildings and lands owned by freedom fighters, retired members of Defense services and their widows during their lifetime if they are exempted from income tax;

g) Buildings and lands owned by blind persons, abandoned women and mentally incapacitated persons if sufficient proof is produced in this behalf and if the main source of their maintenance is the rent derived from such buildings and lands;

1 For details of these exemptions, please see Section 136 of the Madhya Pradesh Municipal Corporation Act, 1956.



h) Buildings and lands in occupation of owner for his residence shall be exempted from property tax to the extent of fifty percent;

i) The electric poles erected by the Madhya Pradesh Electricity Board and

j) Property owned by such political party in the State, which has been recognized by the Election Commission of India.

7.6 Benefits of New System The introduction of Self Assessment (using standard zone based assessment rates), based on UA method, has replaced the old property tax assessment and collection system (based on ARV system) which were associated with a number of problems / issues related to wrong or under assessment of the properties. In the new SA system, the owner of the property visits the Corporation office once during the financial year and calculates his property tax according to a simple method. As mentioned earlier that IMC has been divided the city into six zones on the basis of property value, quality of infrastructure, municipal services etc. A standard assessment rate for each zone has been assigned on a per square foot basis. These zonal rates are multiplied with the built up area of the properties to work out the ALV. To determine the tax rate, different slabs for taxable ALV have been provided.

In Self Assessment System, the ALV is assessed on the built up area of the properties while in earlier system the ARV was assessed on the carpet area of the rooms. The existing assessment base - ALV, seems to be more scientific and logical than ARV.

On the whole, one can say that the introduction of the new assessment method for Property Tax has not only simplified the tax administration process but also has reduced the scope for malpractices. It has accelerated the cumbersome process of assessing Property Tax. It is a good example of simplification of tax related procedure.

7.7 Impact of JNNURM Reform As per the progress made up to 31.12.08, following reforms have been done or are being done:

On line tax collection system through credit card, ATM card and on line Networking has been started.

Unique property tax Index, number for each property has been introduced.

IMC website has been established.

Individual ledgers are being maintained on the basis of double entry system.

Improving transparency and accountability of the tax collection system.

Introduced redressal system for false or inflated tax.

Motivation is being given for advance taxpayers through incentives including prizes.

Implemented the revision of tax rates and structure on yearly basis.

Innovative incentives and publicity for tax buoyancy.



Integration of Building permissions with property tax.

Regular survey is being done to cover all new properties.

7.8 Innovations, Replicability and Sustainability In order to improve the property tax system, the Indore Municipal Corporation has taken many specific steps and introduced many modernization programmes related to Property Tax. These innovations/ reforms have been introduced by IMC since 1997, which may be summarized in the following manner:

a. As mentioned earlier that IMC has introduced the ALV based Self Assessment (SA) method, which has replaced the old ARV, based assessment system. Due to the change from ARV to ALV, the area that is assessed for property tax has changed from carpet area of rooms to build up area. This has increased the area, which is assessed for tax purposes. In the old system, the onus of paying property tax was on the Corporation in which the Bill Collectors were used to play very important role in assessment and collection of the Property Tax. However, in the Self-assessment system, the onus is on the property owners. The assessment of Property Tax in SA system is very simple and owners friendly. It has reduced the issues / problems related to wrong / over assessment of the properties.

b. Computerization of Property Tax records was initiated in October 1999 which eliminated the issues / problems related to manually maintaining records. Property Identification numbers / service numbers for each property have been worked out and by these numbers the information related to any property can be accessed. IMC has updated all information for each property. Due to the Real Time Transmission system, the owner of the property can make on line payment of Property Tax through credit card and can get the receipt at the same time. Besides Corporation’s main office, this facility has also been decentralized up to zonal offices. Many types of Management Information System (MIS) reports can be generated very easily with this computerized system.

c. Computerization of accounts involves recording of all payments through computers system and building a link between the accounting and budgeting, creation of accounts codes, cost centers etc. The information on demand, collection and balance (DCB) has already been computerized. The list of defaulters is taken out on the basis of which notices are sent to the owners of the properties. Bill Collectors also approach the taxpayers in these regards.

d. In 1997, the Indore Municipal Corporation has introduced Cash Collection Counters at the main office and its zonal offices. These efforts have been phasing out of door-to-door collection of Property Tax, which usually led to malpractice in cash collection.

e. Surveys to identify unregistered properties were started in 2001.These surveys are being carried out on regular basis to cover new properties.

f. For each property, property identification number / service number has been worked. By entering this number the whole information for a particular property can be accessed.



g. Each property has an individual ledger. The list of defaulters is generated on the basis of which Bills / notices are issued twice in a year.

h. In the year 2003-04, the Indore Municipal Corporation has introduced Data Sharing System with the Registrar of Properties. It has opened its counters in the premises of the office of the Registrar of Properties. The buyers of the properties can deposit the properties tax dues on these counter before getting the No Objection Certificate (NOC).

i. A Correction Unit (Redressal Cell), comprising of four officials, was opened in 2002-03, at the main office of the Corporation. If any discrepancy is found related to the Property Tax then the owner of the property file the objections and the error is rectified as soon as possible. Besides this, ‘Ahillya Samadhan Shivir’ is also working in each Zone to rectify the Property Tax related issues / problems. As per the latest information available, 3,200 applications have been entertained till the reporting date i.e.5 February 2009.

j. Ward wise Tax Collection Camps are held in the month of August and January/ February. The complaints or discrepancies, related Property Tax, are also heard in these Camps besides depositing the Property Tax.

k. Awards are given to those IMC officials- Bill Collectors who achieve their target or more than the target.

l. The Indore Municipal Corporation draws lottery for the Taxpayers who pay the Property tax in advance (by April – June). In the year 2008 –09, IMC declared a Foreign trip package, Hero Honda Motor Cycle, Fridge / Washing Machine as first, second and third prizes, respectively. About 120 Mobile Phones were also distributed as consolation prizes.

7.9 Issues and Problems The issues / problems emerged out from discussions with officials and stakeholders are as follows:

It was reported that the demarcation / identification of the properties has not been done properly. For example, if a property has more than one portion – A and A1, the assessment for both the property portions are the same Moreover, the assessment of the properties has been done on higher side.

The Corporation view point in regard of assessment is that in many cases the area of the property is wrongly declared by the owner of the property just to reduce the tax liability.

In many cases, the use of the property (whether it is residential, commercial or Residential cum commercial) is wrongly declared. It has been observed that unofficially commercial activities are carried out in those properties, which have been declared as residential properties.

In order to reduce tax amount, the type of construction is wrongly reported by the owner.



As per the Act, 60% of the land is allowed for constructing a house. It has been argued by the RWAs that the Corporation should charge Property Tax on the built up area, not on the whole land. The logic behind this was given that the municipal services are provided for constructed land.

It was pointed out that the correction in wrong bills takes long time and the taxpayers have to go through a long procedure. In some disputed cases, the Corporation takes 2- 3 months in rectifying the problem.


1. The KMC had initiated the preparation of a GIS-enabled database under the DFID assisted capacity building programme to improve tax coverage and

ll i ffi i

1. Commercial Surcharge.

2. Howrah Bridge Tax.



KOLKATA


45%

0%2%

53%

PT Octroi

Other Tax Receipts Non Tax Receipts

23%

77%


70.00

80.00

70.49 70.45

59.54

%)collection efficiency.


3. The KMC has also liaised with banks for collection of property tax and other fees so as to simplify the tax payment easier.

4. The KMC has substantially reduced the exemptions on property tax under the new Act of 1980 only to charitable trusts after a thorough examination.


2. The adoption of the self-assessment based Unit Area Method for property tax determination has been approved by the State legislature and the KMC has duly amended its Act to that effect.

45%

0%2%

53%

PT Octroi

Other Tax Receipts Non Tax Receipts

23%

77%


0

200

400

600

800

1000

1200

2004-05 2006-07

1064.81

628.6

050

100150200250300350400

2004-05 2006-07

378.34

276.08

Prop

erty

Tax

(in C

rore

s)

0

2

4

6

8

10

2004-05 2006-07

4.69 5.07

Asse

ssed

Pro

pert

ie (i

nLak

hs)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

2004-05 2005-06 2006-07

70.49 70.45

59.54

Col

lect

ion

Effic

ienc

y (

%)



8.0 Kolkata Municipal Corporation 8.1 Introduction Kolkata, the capital city of West Bengal is also the 10th most populated metropolis in the world. Government in Kolkata has started its journey with the enactment of the Calcutta Municipal Act, 1923. Later the Calcutta Municipal Act 1951, replaced this Act. Further the Act of 1951 was replaced by a new Act namely the Calcutta Municipal Corporation Act, 1980. The name of ‘Calcutta’ has been converted to ‘Kolkata’ after enactment of the West Bengal Capital City (Change of Name) Act, 2001.

The Kolkata Municipal Corporation (KMC) has come a long way since the first Mayor’s court was established in 1726. Covering an area of 187 square km and serving the third largest municipal corporation in the country, it provides a range of urban services including the supply of drinking water, sewerage and drainage, solid waste management, roads maintenance, street lighting and slum development works to more than 4.5 million static and another 6 million floating population. Kolkata is the main business, commercial and financial hub of eastern India and northeastern states. The liberalization of the Indian economy in the 1990’s has resulted in the city’s economic revival largely led by the IT services, with the IT sector growing at 70% yearly, twice that of the national average. In recent years, infrastructure sector has seen large investments especially for housing infrastructure with several new projects being initiated.

8.2 Urban Governance Civic Powers and functions of the Kolkata Municipal Corporation under the Kolkata Municipal Corporation Act are almost identical to that of the West Bengal Municipal Act, 1993 with the following major variations-

The number of wards of Kolkata Municipal Corporation is fixed to 141, and the boundaries of each ward of Kolkata Municipal Corporation are fixed in scheduled II of the Act.

For further decentralization there is a borough setup. Corporation constitutes 15 boroughs, which are groups of contiguous wards. Each Borough Committees civic administration in borough areas are supervised by a Borough Committee constituted by a Councilors of the wards of concerned borough.

The Corporation is empowered for assessing the properties with in the Corporation area, unless otherwise the directed by the State Government, for the purpose of imposition of property tax.

The Mayor is the First Citizen of the Corporation. The administration of the Corporation is run by the Mayor-in-Council constituted the Mayor, the Deputy Mayor and the maximum of 10 other elected members of the Corporation.

The functions of the KMC include both obligatory and discretionary functions. Besides these, exercising of general functions is subject to KMC Act, rules and regulations. Services include Water Works and Water Supply, drainage and sewerage, street lighting and Electricals, Roads and



Pathways, Land Use Control and Building, Solid Waste Management, Health Care, Town Planning, primary education etc. among other things.

8.3 Overview of Finances The Corporation’s revenues are both from internal and external sources. Internal sources consist of revenue accrued by the KMC on its own, and external sources consist of revenue from other sources such as grants and loans from the Central as well as the State Government. The major sources of tax revenue include:

a. Property Tax Assessment and Collection;

b. Enlistment Certificate for Profession, Trade and Calling;

c. Fees for Advertisements and Car Parking;

d. Fees for Amusement;

e. Other statutory fees and charges (service charge on central government properties etc);

The non-tax revenue sources include charges from water supply, sewerage and drainage, commercial services like municipal markets etc., charges from building plan sanction fees, license fees, car parking fees, amusement charges etc.

From 2006-07 onwards receipts from public private partnership constitute the third source of internal revenue. External sources of revenue or government grants include grant for D.A, grants for supplementing services in Bustee/slums, grants for supplementing water supply, sewerage, drainage, development grant etc. Table 8.1: Municipal Revenue Receipts (Rs. in Lakhs)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 a) Tax Receipts 21085

(36.91) 24026 (37.11)

23302 (30.13)

38242 (45.09)

25006 (29.71)

28631 (23.9)

Property Tax receipts 20902 23337 22822 37834 24480 27608 Octroi 0 0 0 0 0 0 Other Tax receipts 183 689 480 408 526 1023 b) Non-tax receipts 11088

(19.41) 15053 (23.25)

26841 (34.70)

18947 (22.34)

24072 (28.60)

32816 (27.40)

c) State grants/transfers 24959 (43.69)

25662 (39.64)

27198 (35.17)

27621 (32.57)

35084 (41.69)

42717 (35.67)

d) Other revenue receipts (from PPP)

0 0 0 0 0 15606 (13.03)

Total Revenue Receipts [a+ b+ c+ d]

57132 (100.0)

64741 (100.0)

77341 (100.0)

84810 (100.0)

84162 (100.0)

119770 (100)

Source: Kolkata Municipal Corporation. Note: These receipts should not include internal budgetary transfers/allocations etc. Figures in brackets are the percentage shares.

An analysis of the tax revenue structure of the Corporation indicates that the percentage share of tax revenue to the total revenue receipts of the Corporation has over last 5 years been significantly



lower than the share of state government grants and transfers. The dependency of the municipality on government grant does not indicate a healthy status of revenue generation for the municipality. Since the property tax should continue to be a major source of revenue for the Corporation, a critical analysis of the property tax system, the problems faced in enhancing the property tax revenue and innovative measures taken to increase it should be highlighted.

8.4 Property Tax System: KMC 8.4.1 Structure

The Assessment Collection department of the KMC has officials at policy level and borough level. At the policy level, the Joint Municipal Commissioner (Revenue) is in charge of functions along with Chief Manager (Revenue & Supplies) who heads the department. The 141 wards in KMC (categorised under 15 boroughs) are divided into 6 units, each headed by an Assessor –Collector. The Assessor –Collector (Head Quarters) is responsible for all the six units under him. The 6 units are: Figure 8.1: Organisational Structure, Property Tax Department, KMC

Source: Kolkata Municipal Corporation.

Joint Municipal Commissioner (Revenue)

Chief Manager (Revenue & Supplies)

Assessor-Collector (Headquarters)

Assessor-Collector North

Assessor-Collector South

Assessor-Collector S.S. Unit

Assessor-Collector TT Department

Assessor-Collector Jadavpur Unit

Assessor-Collector GR Unit

Deputy Assessor-Collectors- 8



Deputy Assessor-Collector- 1

Deputy Assessor-Collectors-6

Deputy Assessor-Collector- 1



Assessment- Collection (North): Wards 1-51

Assessment-Collection (South): Wards 52-90 (excepting 66,67 and 89)

Assessment-Collection (Tollygunj Tax Department): Wards 66,67,89 and 91-100

Assessment-Collection (Jadavpur Unit): Wards 101-114

Assessment-Collection (S. S. Unit): Wards115-132

Assessment-Collection (Garden Reach Unit): Wards 133-141

The office of the Deputy Assessor –Collector, looks after each of the units. For e.g. the north and the south unit has 8 Deputy Assessor-Collectors each under it, the S.S. Unit and T.T Department has 6 Deputy Assessor-Collectors each, while the G.R. unit and Jadavpur unit has one Deputy Assessor Collector each looking after it’s functioning.

Property tax is payable on all properties whether it is a vacant land or land on which a structure has been built within the KMC limits. The composition of Property Tax consists of Property Tax + Commercial Surcharge + Howrah Bridge Tax. The AV of vacant land is fixed at 7% of the estimated market value of the land.

Table 8.2: Property Tax features - KMC

2003-04 2004-05 2005-06 2006-07 2007-08 Total revenue receipts (in lakhs)

77341 84810 84162 119770 140776

Total revenue from PT including surcharge on PT (in lakhs)

22822 37834 24480 27608

Total revenue from own sources

50143 57189.80 49078.84 62551.21 64624.8

Share of PT revenue to own revenue (internal source)

45.51 66.15 49.88 44.92

Share of PT to total revenue (%)

29.51 44.61 29.09 23.05




Table 8.3: Tax Revenue Structure - KMC (Rs. in lakhs)

Tax Revenue Revenue Percentage Share to Total Tax Revenue

Percentage Share of I to II

a) Property Tax including surcharge on PT 27608.44

96.43 37.16

b) Tax on Trades, Professions and Callings

31.15 0.11

c) Tax on advertisement 471.95 1.65 d) Service charges on Central Government properties

484.87 1.69

e) Tax on Carriages 0.53 - f) Tax on Carts 33.80 0.12 I. Total of Tax Revenue (a+ b+ c+ d+ e+ f) 28630.74 100.0 II. Total Revenue Receipt from Internal Source (Tax Rev. +Non Tax Rev. + receipts from PPP)

77053.02


While PT has the largest percentage share of tax revenue to the total tax revenue source, its share to the total revenue from internal sources, which includes Tax Revenue, Non-Tax Revenue and receipts from PPP, is only 37.16%.

8.4.2 Assessment

Property Tax is one of the main sources of internal revenue of the Urban Local Bodies. The current system is based on chapter-XII of KMC Act 1980 .As the property tax is still determined on the basis of annual valuation of lands and buildings (as defined in Section 174 of the Act), the entire process of determining property tax is solely dependent on assessment of lands and buildings, which shall be deemed to be the gross annual rent including service charges if any, at which such land or building might at the time of assessment, be reasonably expected to let from year to year. Determination Of Annual Valuation (AV):

In Annual Rental Value system tax is calculated on annual rent that is actually or reasonably fetched by a property. Here Annual Rent (AR) = Monthly actual or reasonable rent X 12.

In this system Annual Value (AV) = AR minus x% (in case of Kolkata Municipal Corporation value of this x is 10%) statutory deduction for maintenance. A percentage of AV is determined as the annual Property Tax.

In case of Kolkata Municipal Corporation this tax = (AV /600 + 10)% of the AV subject to minimum of 11% and a maximum of 40%.

For example:

a) If the property is used by the owner himself, then "Reasonable Rental Method" is applied, i.e. from our database and comparing with similar premises, expected rent per month, the property is capable of fetching, is determined, then it is multiplied by 12 and a 10% statutory maintenance allowance is subtracted to arrive at the Annual Valuation (round to nearest 10).



b) If the property is tenanted, then the exact monthly rent (including service charges if any) is multiplied by 12 less 10% statutory allowance to arrive at the Annual Valuation.

c) In case of Theatre/cinema halls, 7.5% of the Gross Annual receipts (excluding taxes) are fixed as Annual Valuation for the Hall.

8.4.3 Rates of Taxes

a) If the Annual Valuation as fixed above does not exceed Rs.600/-, then the rate of tax is 11% of the Annual Value. That is if A.V. is Rs. 500/- then the property tax per year is Rs.55/- plus Howrah bridge tax @ 0.5% of the quarterly tax is allowed if deposited in time.

b) If the Annual Valuation as fixed above, exceeds Rs.600/- but does not exceed Rs.18000/-, then tax ration is the percentage of the A.V. worked out by dividing the A.V. of the premises by 600 and adding 10 to the quotient, the sum thus worked out being rounded off to the nearest first place of decimal.

c) That is A.V. of premises is Rs.1300/-; then 1300/600=2.16. Hence property tax percentage is 2.16+10=12.2% (rounded off). So the person has to pay Rs.158.60/- per year plus Howrah bridge tax @ 0.5% of A.V. and a further rebate of 5% of the quarterly tax is allowed if deposited in time.

d) If the Annual Valuation as fixed above exceeds Rs.18000/-, then the rate of tax is 40% of the Annual Value. That is if A.V. is Rs20000/- then the property tax per year is Rs.8000/- plus Howrah Bridge tax @ 0.5% of A.V. and a further rebate of 5% of the quarterly tax is allowed, is deposited in time.

e) For Bustee, specified educational institutions, some statutory organizations the rate of tax is different.

f) For commercial/non-residentially used premises a surcharge @ not exceeding 50% of tax is levied additionally.

Subjective element of these systems leads to non-transparency, wastage of time of the civic personnel in cumbersome processes, and above all difference of opinion leading to excessive litigations, and thus wastage of efforts of civic personnel and fund in fighting the court cases. With growing rate of urbanization and change in the socio-economic scenario, the system of assessment of lands and buildings is getting more complex and as a fall out, the collection efficiency of Property Tax is dwindling leading to poor revenue generation for the Corporation. Also, the present system, due to its inherent lacuna and subjectivity, invites excessive litigation and consequent loss of revenue of KMC. There are a lot of court cases lodged against the KMC disputing the Annual Valuation calculated for a particular building. Present statistics of pending cases (property tax related) are as follows:

At the Municipal Assessment Tribunal (MAT)-26,000

At the High Court- more than 1500

At the Supreme Court- 25

The major ground for challenge in court is the reasonableness of the tax levied and rational basis of classification of assessed properties.



8.4.4 Revision of Guidance Value

Guidance Value Revision is done at different times in different wards, so no uniform date for the last revision of guidance values can be ascertained. Interim revision is carried out if modifications are done in the building structure. The KMC carries out its assessment once in 6 years.

8.4.5 Exemptions

Exemptions/Concessions are granted for the following properties: -

1) Heritage Property;

2) Place of Worship;

3) Parade Ground, Burial Ground/Crematorium etc.;

4) Charitable Institution, if approved by the Mayor-In-Council;

5) Ex-Servicemen (25%);

6) New Buildings with single unit assessment for 3 years and

7) Embassy under Vienna Agreement subject to fulfillment of statutory conditions.

8.4.6 Billing and Collection System Table 8.4: Demand and Collection of Property Tax (Rs. in Lakhs)

Year

No. of Assessed Properties

Current Demand

Arrears Total Demand

Current Collec.

Arrears Total Collec.

Collect. Eff

2002-03 4,39,649 17887.03 N.A. N.A. 9538.21 8607.73 18145.94 N.A. 2003-04 4,52,454 20220.48 N.A. N.A. 11129.18 11787.25 22916.44 N.A. 2004-05 4,69,165 22049.81 12119.6 34169.41 11967.72 12118.94 24086.66 70.49 2005-06 4,91,261 23065.16 10972.63 34037.79 13006.56 10972.63 23979.19 70.45 2006-07 5,07,556 24343.98 24014.53 48358.51 14103.69 14686.6 28790.29 59.54 2007-08 5,26,096 31039.83 38761.31 69801.14 14948.8 16035.66 30984.46 44.38 Source: Kolkata Municipal Corporation.

The demand raised annually from 2004-05 to 2006-07 (current demand only) has been increasing marginally while in 2007-08 it had shown a more significant increase of Rs 31039.83 lakhs, of which the KMC was able to collect around Rs 14948.8 lakhs only. Thus, the collection ratio of the KMC for 2007-08 was as low as 48.16%, which is a decline from 57.93% in the previous year.

For 2 consecutive years, in 2005-06 and 2006-07, the arrears on demand was collected 100% but the deficit on current demand with interest became the arrear the following year which rose to Rs 240 crores in 2006-07 and to Rs 387 crores in 2007-08, thus maintaining the low collection efficiency figures.



8.5 Issues Problems in the present system that is leading to the change in the assessment system are as follows:

Subjectivity: “Reasonable Rent” is a completely subjective term, and creates considerable scope for using discretion at even lower level.

Discrepancy: This system creates wide spread discrepancy by placing similar properties in dissimilar tax pattern.

Central Govt. properties do not pay their share of the property taxes, while the State Govt. properties pay taxes, though not regularly. In fact, even the rented/leased out portions of the Central Govt. properties do not pay taxes. The Govt. properties should not be exempted in any way. Foreign Embassies should not be exempted from the payment of property taxes. Corporations estimate of property tax revenues lost on account of exemptions runs to the tune of approximately Rs. 4 crores.

Non-transparency: Non-transparency of this system leads to mutual mistrust and misunderstanding. Apart from this the system creates ample scope of tax management and entry of middleman in the system.

Wastage of time of officials: Officials remain busier in arguing with the taxpayers, cumbersome and lengthy hearing process and file / document management, than to do the duty related to tax administration.

Non-reflection of actual revenue potential: Subletting, subdivision and collusive rent have been hiding the actual revenue potential. Apart from long term tenancy and Rent Control properties lead to low valuation for low rent.

8.6 New Assessment Mechanisms In this situation to ensure a dynamic process of a transparent tax administration a decision has been taken to switch over the system of valuation of properties in Urban Local Bodies to Unit Area System of assessment and to this effect the KMC (Amendment) Act 2006 has been passed in the Legislative Assembly. The unit area system is a simple arithmetical system of calculation of property tax based on covered area of the building and the unit area value or unit area tax for the category (of locality or amenity etc.) in which the premises is located through which it is possible for any citizen to self-assess his property tax and file his return form.

8.6.1 Unit Area Assessment Method: The Methodology

One time in-house work in every five years to bring equality at macro level at first.

Determination of valuation by an independent Committee namely the Municipal Valuation Committee.



Division of all wards in varying number of sub-wards/ blocks depending on basic infrastructure, in broad based manner, after considering the views of general citizens.

Categorization of such sub-wards/ blocks on the basis of available infrastructures and defined factors.

Grouping the sub-wards/ blocks of identical and similar nature of whole area of the Urban Local Body in same set.

Putting Base Unit Area Value, i.e. Base annual value per sq. ft. to properties within a grade of sub ward/block with the help of revenue simulation taking into consideration the existing revenue base. In this way similarly located all properties will have similar Base Unit Area Value. This will be publicly communicated.

Fixing predefined and publicly proclaimed multiplicative factors (from 0.5 to 8) to determine the actual value of the property, by increasing or decreasing the Base Unit Area Value depending of condition of individual property. For fixing multiplicative factors the mandatory parameters of type of location, use, age structure and occupancy status shall bed considered, and apart from this there exists provision for considering such other parameters as may be deemed necessary by the Municipal Valuation Committee.

Publication of the scheme, after considering the views of general citizens, for the purpose of specifying Base Unit Area values of lands and buildings under all classes of areas within the Corporation.

In this system the annual value of a land or building shall be the amount arrived by multiplying the total area of land and/ or building by the Base Unit Area value of such land and/ or building.

A percentage of such annual value shall be fixed as the annual Property Tax.



Figure 8.2 Calculation of Property Tax

Calculation of tax

# If different units/portions of building/premises owned/occupied by

rate payer is subject to different multiplicative factor values

vis-à-vis final unit area value then Annual Values for such

portions are to computed separately and added to get final

Annual Value. Source: Kolkata Municipal Corporation

8.6.2 Benefits of the new system

Unit Area Method is an approach towards people friendly system – it would transfer the power of estimating the property tax from a few employees to the taxpayers. The obvious benefits of the Unit Area system will be:

Simple to administer

Objective

Different zone and its category

Category/zone wise Base Unit Area Value

Rate of Tax

Multiplicative factors & its weightage value (0.5-8)

Covered area/land area

Property Tax

Properties at similar zone / block are not identical. There is difference in frontage width, occupancy nature, structure type, age, use etc. Hence such dissimilar properties cannot be treated “equal”

• Final Unit Area Value = (Base Unit Area Value of category of Block where any property is situated) x covered area x mf1x mf2 x mf3 x mf4 x mf5 etc.

• Annual Value (AV) of Property = Final Unit Area Value x Covered Area

• Annual Tax of Property = Annual Value (AV) x Property Tax % to be stated in Act

Published Data

Restricted Data



Transparent with Rational base

Equity can be maintained

Scope for self assessment

Less scope for litigation in long run

8.6.3 Present Status of the new system

KMC Act has been amended for the purpose of implementation of Unit Area Assessment method and the Municipal Valuation Committee has been formed by legislation in December 2007.

Relevant data for the purpose of categorization has been collected for various parameters including availability of services/infrastructure and rate per kattah value as per IG (Registration) Department for different streets and zones.

Exercise for categorization has been started by KMC utilizing the data collected by UAA cell with assistance from consultants.

Action has been taken for computerization of all manual description with respect to different assesses and estimating notionally the covered area from such data where actual covered area data is unavailable.

Action has been taken for uploading of different data of streets/ zones over digitized aerial map prepared by NRSA to get help for categorization and find out block-wise covered area.

Collation of license data has been started to stagger commercial property area and other areas, block-wise using NRSA map as well. Preliminary exercise is done for collating IG(R)’s data only at different streets and micro-blocks prepared ward-wise (for some representative wards). Same exercise is done with the data of service/infrastructure.

It has been found that though IG(R)’s value is supposed to reflect all service/infrastructure related factors, striking differences are found in some cases between the outcomes of above mentioned exercises.

Hence, separate consultants are conducting the above exercises and the outcomes are being reconciled to get the final picture. The full switchover is expected to happen by 2009-10.

8.7 Achievements under JNNURM Property Tax Reforms The KMC presently follows a demand based ARV system for property taxation. However, the Corporation intends to migrate to the Unit Area Method for property tax assessment for which the required amendments have been made within the Municipal Act. To facilitate the transition three committees have been formed, namely the Municipal Valuation Committee, the Anomaly Review Committee, and the Hardship Redressal Committee. The Municipal Valuation Committee will segregate the city into several blocks, assign appropriate values to each of the blocks and develop



further parameters such as access to infrastructure etc. so as to enable a formula based self assessment system.

According to a recent household survey conducted by the KMC, about 5.05 lakhs properties have been assessed so far. The adoption of the self-assessment based Unit Area Method for property tax determination has been approved by the State legislature and the KMC has duly amended its Act to that effect. This is expected to improve the coverage of the Corporation. The entire process of migration to self-assessment system of property taxation is slated to be complete by 2009-10.

The KMC has substantially reduced the exemptions on property tax. While the Municipal Act of 1961 prescribed several exemptions, the new Act of 1980 reduced the scope by recommending that the Mayor-in-Council (MIC) could grant exemptions only to charitable trusts after a thorough examination. Besides charitable trusts, even heritage institutions are exempted on the condition that they use the premises for non-commercial public purposes only.

Two consultants, Statlead Solution and Institute of Surveyors & Institute of Valuers (jointly) have been appointed for dividing the city into blocks, preparation of contour values on the basis of the market values supplied by the IG Registration, and examination of the social/ economic infrastructure and amenities, and ultimately to match the same for final blocking and categorisation. The final report is expected by July 2009.

The KMC had initiated the preparation of a GIS-enabled database under the DFID assisted capacity building programme even before the start of the JNNURM programme. Through a tendering process, a consultant has been appointed for the task of door-to-door contact survey (utility and ownership data) and verifying the digitized map on ground, and one consultant to integrate the data with the digitized base map to create a GIS-enabled map. Preparation of digital property maps for the KMC area has been completed based on the base map obtained from the National Remote Sensing Agency (NRSA).

Presently the frequency of revision of guidance values is 6 years and accordingly the next scheduled revision is in 2009-10. However, after the adoption of the Unit Area Method for determination of property tax this period will be reduced to 5 years. The periodicity to be adopted will be 5 years (presently it is 6 years) after the initiation of the Unit Area Method for property tax determination and the rules for the same are presently being finalized.

The KMC offers a rebate of 5% to honest and prompt taxpayers. Moreover, to encourage clearance of past arrears, the Corporation has started the facility of 99% waiver if the entire outstanding amount is paid at one time. The Corporation also charges a penalty of 15% on the total payable tax in case of delays in payment.



Thus the coverage ratio of the KMC for 2006-07 was about 61.5%. For 2007-08, the coverage ratio increased to 78.54%, which is much more than the targeted level of 66.51% in the 7-year span.

8.8 Initiatives/ Innovative Measures e-Governance: Computerization of the property tax system to make it more efficient and consumer friendly. www.kolkatamycity.com, the official website of the KMC, has property tax downloadable forms, formulae to assess and calculate property tax, mutation details, etc. All components of Assessment-Collection System like Assessee Generation and Deletion, Hearing, Bill Generation, Collection, Adjustment, Mutation, Various Reports Generation are computerized. A Municipal Assessment Tribunal has been established for dealing with matters related to property tax.

The KMC has planned to run all its systems centrally through single server and installed the Central Server at its IT Building. It has also undertaken the project to make all the systems interlinked and all its terminals online.

To improve coverage and collection of property tax, the KMC has initiated the process of regularizing unauthorized constructions in the added areas at a subsidized rate so as to encourage the citizens to register their properties. Besides, the adoption of the self-assessment system coupled with the completion of the GIS database of properties is expected to improve property tax coverage and collection substantially. In addition to these, the KMC intends to facilitate the payment of property tax by simplifying the procedures (as suggested by a study by M/s Price Water Coopers in 2005) as also by setting up e-kiosks at several places for the payment of tax online. These are being planned on a PPP basis through the assistance of M/s HCL and M/s TCS. One e-kiosk for the elderly people at AJC Bose Road is expected to be complete within 3 months under the KEIP (Kolkata Environment Improvement Programme). The KMC has also liaised with banks for collection of property tax and other fees so as to make the process of tax payment easier.

The KMC regularly organizes camps for the clarification of doubts regarding property tax and to encourage citizens to pay their dues. These camps have also enabled the Corporation to bring more properties under the tax net in the newly added areas. The Corporation has also prepared a list of FAQs and a booklet regarding these and other clarifications has been published.

KMC has instituted two innovative mechanisms for expediting the process of grievance redressal regarding property tax disputes. The first is a system called Lok Adalat which has been introduced since August 2007, wherein a legal review committee formed of representatives from the State Legal Services Authority, eminent lawyers and social workers, reviews complaints and disputes once a month within the premises of the KMC. This Committee deals with 50-60 issues during such sessions. In addition to this, a separate Grievance Redressal Committee has been set up under the Joint Municipal Commissioner to further expedite the process of dispute resolution.


1. House Tax.

2. Fire Cess.



LUDHIANA

18%59%

2%21%


18%

82%

PT Other Tax Rev. (Tot. Rev. Rect. - PT)

2. Incentive is given to prompt taxpayers in the form of 10% rebate if payment is made within 15 days of receipt of bill.

1. Billing for property tax is totally computerized for all zones.


Per Capita Property TaxGrowth in PT Collected Growth in Assessed Properties


18%59%

2%21%


18%

82%

PT Other Tax Rev. (Tot. Rev. Rect. - PT)

100

120

140

160

180

200

220

240

260

280

2003-04 2007-08

245.84

270.43

0

10

20

30

40

50

60

2003-04 2007-08

34.42

50.3

Prop

erty

Tax

(in C

rore

s)

00.10.20.30.40.50.60.70.80.9

2003-04 2007-08

0.75

0.86

Ass

esse

d Pr

oper

tie (i

n La

khs)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2004-05 2005-06 2006-07 2007-08

45.64 49.5156.39

69.68

Col

lect

ion

Effic

ienc

y (

%)



9.0 Ludhiana Municipal Corporation

9.1 Background

Ludhiana city was founded in the time of Lodhi dynasty, which ruled in Delhi from 1451-1526 A.D. The new town was originally known as Lodhi-ana, which means the town of Lodi's. The name later changed to the present name Ludhiana. With the increase in population and territorial area of Ludhiana city, the budget of Municipal Corporation has crossed Rupees 338 crores, which was only Rupees 50 lakh in 1970. Today the Municipal Corporation of Ludhiana has a population of about 18.7 lakhs in an area of 159.37 sq. kms and a density of population at 804 persons per sq. km. With staff strength of approximately 7000 employees, Ludhiana Municipal Corporation is the largest city of Punjab with a primarily industrial base.

9.2 Urban Governance

The Municipal Corporation was formed in 1976 under the Punjab Municipal Act, 1976. For the first time elections of Municipal Corporation Ludhiana were held in year 1992. Total number of members of house was 50. Gradually the strength of the house was increased to 70, plus five MLA members. The municipal corporation is divided into 70 wards and administratively headed by the Municipal Commissioner. The Mayor and Deputy Mayor form the elected head of the city.

3 Joint Commissioners and 1 Assistant Commissioner assist the Municipal Commissioner. The Corporation is divided into 4 zones, each zone headed by a Zonal Commissioner. Presently the 4 zones are under 3 Zonal Commissioners and one Assistant Commissioner. The Joint Commissioner (House Tax) heads the Property Tax branch. Each of the 4 zones, A, B, C and D are further divided into blocks comprising of a few blocks each. Zone A has 15 blocks, which is essentially the old city, Zone B has 5 blocks, Zone C has 6 blocks and Zone D comprises of 11 blocks. A total of 70 wards are distributed within 37 blocks.



Figure 9.1: Organisational Structure, Property Tax Department, LMC

9.3 Overview of Finances Ludhiana Municipal Corporation (LMC) improved its financial situation over a period of five years from 1995-2000 and issued municipal bonds for Rs. 17 crores (Rs. 170,000,000) in the year 2000. LMC improved its financial management through computerisation of octroi and property tax billing, collection and monitoring

The annual income of the Municipal Corporation has increased from Rs.92.45 Cr. in the year 1997-98 to Rs. 210.43 Cr. in the year 2004-2005 & Rs. 264.30 Cr. in the year 2005-2006. During the last five years the Municipal Corporation Ludhiana has witnessed a rapid financial growth of 7.98%. The major sources of income for the Corporation are Octroi collection, House Tax, Water and Sewerage Charges, Excise duty, Octroi on Electricity etc. The Municipal Corporation Ludhiana is one of the few Corporations in the country where the expenditure of Establishment and Contingency is 35% of the income. This leaves more than 60% of the income to be spent on development works.

Joint Commissioner

Zonal Commissioner of Zone A

Zonal Commissioner of Zone B



Superintendent (2-4) Superintendent (2-4) Superintendent (2-4) Superintendent (2-4)

Tax Inspector

Tax Collector

Tax Inspector

Tax Collector

Tax Inspector

Tax Inspector

Tax Collector

Tax Collector



Table 9.1: Financial Statement –LMC (Rs. in Lakhs)

Description 2003-04 2004-05 2005-06 2006-07 2007-08 Opening Balance 3649.72 2060.99 2205.21 4948.02 (a) Tax Receipts 15836.08 16840.87 18383.76 18961.17 21595.11 (i) Property tax receipts 3442.58

(17.35) 3556.58 (17.44)

3766.73 (14.73)

4128.31 (13.37)

5030.39 (17.51)

(ii) Octroi 12375.72 (62.40)

13268.87 (65.07)

14571.11 (56.99)

14524.08 (47.05)

16185.79 (56.34)

(iii) Other tax receipts 17.78 (0.08)

15.42 (0.07)

45.92 (0.17)

308.78 (1.00)

378.93 (1.32)

(b) Non-tax receipts 3968.59 (20.01)

3550.52 (17.41)

6213.49 (24.03)

9664.80 (31.30)

5784.33 (20.13)

(c) State grants/transfers 26.25 (0.13)

- 968.87 (3.78)

2243.65 (7.26)

1345.48 (4.68)

(d) Other revenue receipts - - - - - Total Own Source Revenue (a+b)/(share of PT to own sources)

19804.67 (17.38)

20391.39 (17.44)

24597.25 (15.31)

28625.97 (14.42)

27379.44 (18.37)

Total revenue receipts (a+b+c+d)

19830.92 (100.0)

20391.39 (100.0)

25566.12 (100.0)

30869.62 (100.0)

28724.92 (100.0)

Capital Receipts 940.18 1204.66 455.27 1193.98 Total Income of Corporation

24981.29 28831.77 33530.1 34866.92

Total of Revenue Expenditure

14786.58 16558.52 18484.18 21139.88

Capital Expenditure 8129.83 9761.95 10462.29 10098.53 Total Expenditure of Corporation

22916.41 26320.47 28946.47 31238.41

Revenue Surplus/Deficit 5604.81 (27.48 %)

9007.6 (35.23 %)

12385.44 (40.12 %)

7585.04 (26.40 %)

Net Surplus/Deficit 2064.88 2511.3 4583.63 3628.51 Source: Ludhiana Municipal Corporation.

Analysis of the financial statement indicates that Ludhiana has shown a revenue surplus of 27% in 2004-05, which has increased to 35% in 2005-06 and to 40% in 2006-07. This was due to the fact that there was 100% collection of the demand raised in the budget due to full exemption in the interest for that year. However, it has shown a decline to 26.4% in 2007-08.

The Corporation has also shown surplus of total income over the last 4 years indicating relative financial strength of the ULB and giving scope for utilization of the funds for developmental work.



9.4 Tax System

9.4.1 Structure

The Property Tax department or the House Tax Department as it is called in Punjab, is headed by the Joint Commissioner (Building and House Tax Branch). The corporation is divided into 4 zones: A, B, C and D, each headed by 4 Zonal Commissioners. Each Zonal Commissioner has 2-4 Superintendents working under them, who are in turn assisted by Tax Inspectors and Tax Collectors in every zone. 10 Superintendents assisted by Unit Inspectors and Clerks complete the administrative structure.

The composition of the property tax is house tax + fire cess. Table 9.2: Tax Revenue Structure-LMC (Rs. in lakhs)

I. Tax Revenue Revenue Percentage Share to Total Tax Revenue

Percentage Share to Total Tax by Corp.

(a) Tax Receipts (i) Property tax receipts 5030.39 17.51 23.29 (ii) Octroi 16185.79 74.95 (iii) Other tax receipts 378.93 1.75 Total Tax Receipts ( i+ ii+ iii)

21595.11 42.33 100.00

(b) Non-Tax Receipts 5784.33 20.14 (c) State grants/transfers 1345.48 4.68 (d) Other revenue receipts - - Total of Revenue Receipts (a + b + c + d)

28724.92 100.00

Source: Municipal Corporation, Ludhiana.

Note: Figures in italics are the percentage shares.

Detailed breakup of tax revenue structure shows that octroi still has the largest share in tax receipts as part of total tax revenue. Of the total revenue receipts, tax receipts have over 75% share, while non-tax receipts make up 20% only. State government grants /transfers contribute only a little over 4% of the total revenue receipts.

Property tax contributes only 17.51% share of the total revenue receipts as against a little over 23% share in total tax receipts. The low share of property tax in total revenue income of the municipality supports the fact that there is no house tax for any owner occupied residential houses in Punjab w.e.f 1.4.1997 as per Order from Governor Of Punjab, notification no. 7/32/97-4LGIII/7829 dated 16.7.97.

9.4.2 Assessment

The method of assessment, as per Section 93 of the Punjab Municipal Corporation Act 1976, is Annual Rental Value (land: gross annual rent at which it may reasonably be expected to be let) and (buildings: on the basis of reasonable gross annual rent at which such building together with its accessories and furniture may be let for use), which is fixed, based on the prevailing market rate (for industrial and commercial properties). Once the ARV is set, it cannot be revised until



addition or alterations to the property are made. The Corporation does not have powers to revise tax.

As mentioned earlier, currently, property tax is levied only on commercial properties. Punjab Government, w.e.f 1.4.1997 as per Order from Governor Of Punjab notification no. 7/32/97-4LGIII/7829 dated 16.7.97 exempted property tax on all residential properties irrespective of its size. Fire Cess along with house tax is levied at the rate of 3% for residential properties if building height exceeds 35 feet and 10% for industrial and commercial buildings.

9.4.3 Tax Rates

The rate of tax is fixed as per the type of property. The rate fixed on rented residential property is 10% (9% +1% for depreciation rebate) and 15% on industrial and commercial properties (13.5%+ 1.5% for depreciation of buildings). 100% of the taxable properties have been assessed. The tax base includes vacant land (plots), though the Act does not clearly spell out how it is to be taxed. The discretion to do so hence lies with the revenue official.

In cases where it is not possible to determine the gross annual rent of the building, then 5% of the estimated present cost of erecting the building is adopted, providing for deduction not exceeding 20%. The section provides that if the Rent Restriction Act has fixed the fair rent, the rateable value cannot exceed this value or the actual rent for which the same has been let whichever is higher. For commercial properties, if annual rateable value exceeds Rs 12001/ per annum, tax is levied at 50% of the ARV. If annual rateable value is less than Rs 12000/, the tax rate is 24%.

9.4.4 Revision

The Corporation by itself has no power to revise taxes although Section 104 enables the Commissioner to alter the valuation every year. The last revision of property values took place in 1994-95.Once ARV is set, it cannot be changed unless addition or alteration to the property is made. Hence additions, alterations and new properties are being assessed annually. Section 106 makes it obligatory for the owner of a property to inform the Corporation of construction of new building, change in usage or alteration in the building.

9.4.5 Exemptions

Under clause (a), sub-section (1) of Section 61 of Punjab Municipal Corporation Act, the Corporation has extended tax exemption to several categories of properties.

1) A widow, an orphan, a freedom fighter, an ex-serviceman, a blind or disabled person in respect of building or portion owned by him or her in any city in Punjab having an annual income not exceeding Rs. 15,000 per annum. This exemption will be available only in respect of self-occupied residential buildings. But if the annual rental value (ARV) of the building exceeds Rs 400 per month, then the property will come under the tax net.



2) Residential building constructed on plot measuring not exceeding 125 sq. yards and situated within city. Exemption will be restricted only to the category of single storey houses.

3) Buildings and land portion used exclusively for educational purposes by government colleges and schools enjoying 95% aid from the state as well as hostels and boarding houses.

4) All religious buildings charitable medical institutions, orphanages etc and those under trusts involved in the above activities. If the property is under the name of the trust and not an individual, then the exemption will apply.

9.4.6 Billing and Collection Mechanism

Billing is 100% computerized in all 4 zones. Collection is not yet on-line although payment receipts are computer generated. House tax is collected annually while water tax and electricity are collected bi-annually. 10% rebate is given to all those who make their payments within 15 days of being administered the tax.

Section 371 of the Act provides for the service of notice if tax is not paid within due date. The interest rate within 30 days is nil, 12% for the next 3 months and 18% if it exceeds 3 months. Beyond 30 days, the tax could be recovered either by distrait and sale of defaulters moveable property, by attachment and sale of the property, by attachment of rent due in respect of property and by a civil suit.

Table 9.3: Demand Collection Status-LMC (Rs in lakhs)

Year Demand Collection

Collection Efficiency

Current Demand

Arrears Total Demand

Current Collection

Arrears Total Collection

(%)

2003-04 8066.78 3442.58 42.67

2004-05 3150.30 3817.32 6967.62 2038.22 1142.27 3180.49 45.64

2005-06 3279.87 4015.62 7295.49 2511.16 1101.32 3612.58 49.51

2006-07 3340.80 3591.21 6932.01 2710.56 1198.82 3909.38 56.39

2007-08 3578.24 3678.92 7257.16 3281.35 1776.27 5057.62 69.68 Source: Ludhiana Municipal Corporation



Table 9.4: Selected Measures of PT Revenue Performance-LMC

Year Revenue Collected Assessed properties Property tax collection per Property (Rs)

Amount (Rs in Lakhs)

Percent Increase

Number Percent Increase

2003-2004 3442.58 …. 75540 …. 456 2004-2005 3180.49 -7.61 76337 1.06 417 2005-2006 3612.58 13.58 79169 3.72 456 2006-2007 3909.38 8.22 81736 3.16 478 2007-2008 5057.62 29.43 86963 6.45 581

Source: Ludhiana Municipal Corporation

Table 9.3 shows the status of demand and collection for the last 5 years in Ludhiana where arrears for both demand and collection exceed the current demand and collection every year. Hence collection efficiency has remained low but increased from 42% in 2003-04 to 69% in 2007-08. If calculated on current demand, the figures will be significantly higher at 85-90% and above. Though there is growth in revenue collection over the years the increase in absolute figures is very low which gets reflected in the collection efficiency.

Table 9.4 shows that though there is an increase in the coverage in terms of increased assessed properties, the tax productivity is quite low. There could be many reasons for this low performance especially as revenue increase has shown fluctuations. The per capita collection or tax collected per property is also significantly less and has shown fluctuations between Rs 400 and Rs 500 only which could be attributed to a variety of reasons including lack of strict enforcement.

9.5 Issues /Problems Views from discussions held with people’s representatives, NGO’s and resident welfare association members brought out few key issues.

The main issues from the people implementing property tax is that enforcement mechanism is very weak as there is too much interference and pressure from the elected body;

Independent bodies, preferably outside of the Corporation, should perform the billing, collection and regulation/enforcement tasks;

Online system of payment of taxes should also be introduced;

Uniform rate of tax should not be applicable to all properties but rate of tax (according to people) is too high and should be reduced so that there is voluntary compliance.

Collection mechanism should be more strict and decentralized;

Sub centers in the form of kiosks and drop boxes should be made available in localities instead of residents having to stand in long ques to submit taxes.



In addition to discussions with LMC officials, discussions were also held with NGOs, Councilors, RWA members, Social workers, experts etc. Their suggestions are summarized below:

Most were of the opinion that while self occupied property exemption was justified, house tax on rented properties should not be waived but the tax rate as well as the assessment method should be justified so that it does not pose a burden for any taxpayer. Compliance for payment of tax should also be enforced.

Tax rate needs to be reduced to facilitate payment by all and the rate should be made uniform for industrial and commercial properties.

Decentralised collection sub-centres for payment of tax should be increased so as to facilitate payment.

Online system of payment should be introduced to reduce time as well as increase compliance.

9.6 Innovative Measures Billing for property tax is totally computerized for all zones.

Incentive is given to prompt taxpayers in the form of 10% rebate if payment is made within 15 days of receipt of bill.

9.7 Impact of JNNURM Reform Reforms under property tax as part of JNNURM has been planned but not taken up in a

big way. The State Government has decided to impose property tax partly in line with Ahmedabad model and partly on Rajasthan model. The structure has been finalized and shall there after be put before Cabinet for approval.

In Ludhiana as in the rest of Punjab, self-occupied residential properties are exempt from property tax since 1997.

Self Assessment Scheme and GIS have not been introduced yet.

Guidelines from the State Government to improve the system are awaited.

PATNA

Map




1. Latrine Tax

2. Water Tax

3. Education Cess

4. Health Cess

93%

7%

PT Non Tax Receipts

23%77%



Growth in PT Collected

Major Reforms/ Innovative Measures Demand and Collection


2. A proper administrative setup is necessary for efficient running of tax administration department of PMC.3. Assessment of Annual Rental Value of holding rules,1933 came into effect, brought a significant change in the method of levying property tax.

1. Self Assessment System has increased the income of Urban Local Bodies in the state including the Patna Municipal Corporation (PMC), to obtain a sustainablr result, an all around efforts are required from every stakeholders either they are personnel of taxation department of Urban Local Bodies or tax payers of the city.

93%

7%

PT Non Tax Receipts

23%77%


02468

10121416

2004-05 2006-07

13.87

15.38

Prop

erty

Tax

(

in

Cro

res)

0

0.5

1

1.5

2

2.5

2004-05 2006-07

1.391.61

Asse

ssed

Pro

pert

ie (i

n La

khs)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2004-05 2005-06 2006-07

39.2

56.0

37.1

Col

lect

ion

Effic

ienc

y (

%)

100110120130140150160170180190200

2004-05 2006-07

N.A. N.A.


National Institute of Urban Affairs 105

10.0 Patna Municipal Corporation

10.1 City Profile Patna is the capital of Bihar, which was initially known as Pataliputra. It is one of the oldest continuously inhabited places in India. As per Census 2001, the population of Patna is over 1,285,470, which has grown from 917,243 in the 1991 Census. The density of population is 1132 persons per square kilometer. There are 839 females to every 1,000 males. The literacy rate is 62.9% where female literacy rate is 50.8%.

10.2 Urban Governance In order to provide civic services to the citizens of the city, the Patna Municipal Corporation (PMC) came into existence on 15th august, 1952 but earlier it was called as Patna City Municipality, which was constituted by a resolution of Governor of Bengal in Council under “District Municipal Act, 1864. (Bengal Act, III of 1864) on 1st Nov. 1864. This resolution was published in the Calcutta Gazette on 21st Nov 1864.The city is spread over an area of around 109.22 Sq K.M. covering 72 wards, except the posh area of Patliputra Colony of Digha area of city, which is at present being managed by a Co-Operative Society.

In addition to the administrative structure, detailed in Figure 10.1, the state Government has recently constituted an organization named as Bihar Urban Infrastructure Development Agency. But it is surprising that no action has yet been initiated to strengthen the Directorate of Urban Local Bodies in this state, which is very much essential for better administration of Urban Local Bodies.

10.3 Overview of Finance

There are two sources of income which PMC receives; to meet the cost of maintaining staff for providing Civic services as well as maintaining existing assets and creating fresh infrastructure in the Urban Area.

1. Internal sources of Income

a) Taxation

Holding Tax;

Water Tax;

Latrine Tax;

Profession tax;

Advertisement Tax; (other than the advertisement published in newspapers)



Toll Tax;

Tax on animal

As far as internal sources of revenue are concerned, the main sources of revenue is Holding tax, other sources of revenue are subsidiaries in nature, as these are not so substantial as “Holding Tax” The amount collected on account of “Health and Education Cess” ought to be returned to State Government after deducting the collection charges as per instruction issued by the State Government. But it is not being returned to State Government by any Urban Local Body of Bihar. The PMC has even changed nomenclature of these Cess calling it as “Health and Sanitation Cess” and “Education Cess”. Like other Urban Local Bodies the PMC also does not return the collected amount of Cess to State Government.


National Institute Of Urban Affairs 107

Figure10.1: Administrative Structure of PMC

Office Suptd. Addl. Municipal Commissioner (Establishment)

Addl. Municipal Commissioner (Revenue)

Addl. Municipal Commissioner (Sanitation )

Secretary PMC

Executive Officer

New Capital Circle

Executive Officer

Bankipore circle

Executive Officer

Kankarbagh circle

Executive Officer

Patnacity circle

Revenue Officer

New Capital Circle

Tax Collector 44

Revenue Officer

Bankipore Circle

Tax Collector 24

Revenue Officer

Kankarbagh Circle

Tax Collector 18

Revenue Officer

Patna City Circle

Tax Collector 24

Medical Officer

Medical Officer

Sanitary Inspector

Sanitary Inspector

Sanitary Inspector

Sanitary Inspector

Municipal Commissioner



As far as external sources of revenue are concerned the main sources of revenue is grants in aid (either for payment of salary to Municipal employee or for development or maintenance of infrastructure) and Additional Stamp duty. Other sources of revenue are subsidiary in nature as these are not so substantial.

Table 10.1:Income and Expenditure-PMC (Rs in Crores)

Income from Internal Resources

Government Grant

Government Loan

Total

Opening Balance

44.28 2.30 1.81 69.11

Estimated Income

69.66 22.65 - 92.31

Total Income 113.94 45.67 1.81 161.43 Total Expenditure

105.80 45.67 1.81 153.28

Source: PMC

This is a picture of surplus budget in which a sum of Rs. 8,84,67,198/- has been shown as surplus during the end of year 2008-2009. But PMC has never collected even 50% of its demand either current or arrear during the year. In the circumstances the actual picture of this budget estimate may be imagined.

In this connection a gap of estimated income and actual income of the PMC for preceding years will clear the picture from the figures mentioned in the following table. Table 10.2: Financial Statement –PMC (Rs in Crores)

Source: PMC

The above table shows that the revenue from its own sources never came as expected. Although it was not even 50% of estimation, resulting in the PMC not being in a position to provide even basic urban services to the habitants of the city.

Financial year

Estimated Receipt (Municipal tax)

Actual Receipt (Municipal tax)

Estimated (Registration fee)

Actual receipt (Registration Fee)

Estimated Receipt from Misc. Municipal resources

Actual receipt from Misc. Municipal resources

2004-05 35.36 13.87 0.13 0.09 0.63 2.00 2005-06 37.74 21.12 1.18 0.22 1.10 1.27 2006-07 41.51 15.38 1.10 0.32 1.10 0.84 2007-08 45.67 5.66

(Half year) 3.24 0.46

(Half year) 1.28 0.56

(Half year)



10.4 Tax System The property tax is a direct tax, which is liable to be paid by the taxpayers for their property situated in the city. The property may be as building or land as specified in the act. The onus of paying property tax lays on the owners of the property and in his absentia the occupier of the holding.

In the eastern states the importance of property tax on revenue generation is very high, as there is no provision for levying octroi in these State. The Bihar is the state where no octroi is levied; as such the main income of Urban Local Bodies comes from the Property Tax. The following details will clear the proportionate share of property tax in overall receipts of Municipal revenue in PMC.

Table 10.3 Tax Revenue Structure-PMC (Rs in Crores)

Year Receipt from Property Tax Receipt from other sources 2004-2005 13.87 (87%) 2.10(13%) 2005-06 21.12 (93%) 1.50(7%) 2006-07 15.38 (93%) 1.16(7%) 2007-08 5.66

for half year (85%) 1.02 for half year(15%)

Source: PMC

From perusal of the above figure it will appear that the total receipt from the other sources is negligible in respect of receipt from property tax,

10.4.1 Existing System

The Bihar and Orissa Act, 1922, previously governed Patna. Later on it came under the PMC Act, 1951 and at present the Bihar Municipal Act, 2007, governs it.

The Bihar and Orissa Municipal Act, 1922 was very exhaustive in all respect. Later on, when the PMC Act, 1951 came into existence in 1952 all most all the provisions of the Bihar and Orissa Municipal Act, 1922 were re-enacted in this Act except the provision regarding Power of Review of imposition of Municipal Tax. In the Bihar and Orissa Municipal Act, 1922, the power to review the Municipal tax was with “Review Committee” consisting of two Ward Commissioners and two tax payers of the municipality, nominated or elected in the prescribed manner by the commissioners at a meeting and one Deputy Magistrate nominated by the District Magistrate in this behalf, provided that no commissioner or tax payers shall be a member of the Committee appointed to hear applications of review from the Ward he was elected and that three members shall form the quorum of the Review Committee meeting .But in the PMC Act,1951, the power to review the tax was vested in the Chief Executive Officer. The same provision has been replicated in the Bihar Municipal Act, 2007 in which Power of Review has been vested in the Chief Executive Officer of the PMC.



As the prevailing rate of Property Tax was very high in Bihar, the arbitrary and unreasonable assessment was a common feature leading to corruption as well as unscrupulousness. The prevailing rate of property tax in the Bihar and Orissa Municipal Act, 1922 and the PMC Act, 1951 as well as Cess there upon imposed by the State Government was as such:

Holding Tax: 12.5% of the Annual Rental value. Latrine Tax: 10% of the ARV Water Tax: 10% of the ARV Education Cess: 50% of the Holding Tax i.e. 6.25% of the ARV Health Cess: 40% of the Holding Tax i.e. 5% of the ARV Total: 43.75%

The State Government realizing this high rate of taxation and loop–holes in imposition of Property Tax, made a Rule in exercise of powers conferred under Section 227 read with sub-section (1) and (2) of Section 130 of the PMC Act, 1951 which was published in the Bihar Gazette Vide S.O. No.281 dated 13.08.1993

In this rule not only the procedure of calculation of Annual Rental Value has been changed but the rate of taxes have also been substantially reduced as such: -

Holding Tax: @2.5% of the Annual Rental value. Latrine Tax: @2% of the ARV Water Tax: @2% of the ARV Education Cess: @ 1.25% of the ARV Health Cess: @1.25% of the ARV Total: @9%

As per Section 3(2) of the rule, the PMC classified the roads in the town as Principal Main Roads and Main Roads vide its notification-dated 8.9.1993 with the approval of State Government.

Likewise rate of annual value according to its situation construction and use was also fixed by the PMC as per Section 5(3) of the rule with the approval of State Government vide its notification dated 8.9.1993.

10.4.2 Structure

As per above notifications the structure of Annual Rental Value for calculation of property tax emerged as such:



Table-10.4: Structure of ARV for Tax Calculation-Patna

Holding on the Principal Main Roads Holding on the Main Roads Holding on other Roads

Type of Construction

Fully commercial or Industrial

Others Fully Residential





Pucca Building with RCC Roof

@ Rs.54/sqr feet

36/- 18/- 36/- 24/- 12/- 18/- 12/- 6/-

Pucca Building with Asbestos or corrugated sheet

@ Rs. 36/- per sq .feet 24/- 12/- 24/- 16/- 8/- 12/- 8/- 4/-

Other Buildings which do not fall in the above two

@ Rs. 18/- per sq. feet 12/- 6/- 12/- 8/- 4/- 6/- 4/- 2/-

Source: PMC

10.4.3 Assessment

Recently the State Government has promulgated the Bihar Municipal Act, 2007 after repealing the Bihar and Orissa Municipal Act, 1922 and the PMC Act, 1951 in which a new section regarding levy assessment and collection of property Tax has been made. The provisions in this section tally with the Rule previously notified by the State Government vide its S.O. no.281 dated 13.8.1993 under Section 227 read with Sub Section (1) and (2) of Section 130 of the PMC Act, 1951, which has already been repealed by now. The relevant provisions of the Bihar Municipal Act, 2007 is annexed as annexure-IV.


There was a clear provision for quarterly billing of Holding Tax in the Section-123 of the Bihar and Orissa Municipal Act, 1922 in which it was said that the notice of demand to be presented within fourteen days of the first day of the quarter. Latter on when the PMC Act, 1951 came into existence, the same provision was made in the Section –203 to 205 of this Act.

More or less the same provisions have been made Section 158 and 159 of the Bihar Municipal Act, 2007 repealing both the above-mentioned Acts. But no Rule or Regulation as said in the relevant Sections of the Act has been made as yet. It is essential that either the previous Rule named as “The Bihar Municipal Accounts Rules (Recovery of Taxes), 1951” be suitably amended



in accordance with the Bihar Municipal Act, 2007 or a fresh new Rule should be made immediately.

10.4.5 Revision of Tax

There was a clear provision for revision of property tax under Section-106 of the Bihar and Orissa Municipal Act, 1922 in which it was specified that the new valuation and Assessment list should ordinarily be prepared, in the same manner as the original list once in every five years. Later on, when the PMC Act, 1951 came into existence, the same provision of periodical revision once in every five years was made in the Section 138 of this Act.

But no any specific provision for periodical revision on every five years has been made in the Bihar Municipal Act, 2007 that has been enacted after repealing both the Bihar and Orissa Act, 1922 and the PMC Act, 1951. Only a provision for filing an application for review by the owner of the holding has made under Section 141 of the Bihar Municipal Act, 2007 which is not like mandatory periodical revision once in every five years as provided in both the Bihar and Orissa Municipal Act, 1922 and The PMC Act, 1951.

10.4.6 Exemptions

There were clear provisions regarding exemption of property for levying Municipal Tax under Section 83,84,85,86,93,110 and 111 of the Bihar and Orissa Municipal Act, 1922 in which it was mentioned that no holding tax shall be imposed on any building which is used exclusively as a place of public worship or any charitable purpose or religious assemblage or a Dharamshala or as a burial or burning ground, or as a mortuary. Even provision for remission or refund on account of vacant building was also in the Act.

Almost the same provisions as in the Bihar and Orissa Municipal Act, 1922 were also made in the Section 124,125, 126, and 146 of the PMC Act, 1951.But in the Bihar Municipal Act, 2007 which has been enacted after repealing the Bihar and Orissa Municipal Act, 1922 and the PMC Act, 1951, no such provisions for exemption has been made, except a few provisions regarding cases of excessive hardship and remission or adjustment on account of vacant holdings .

10.5 Benefits from new system No doubt, this new system of assessment of property tax has substantially increased the revenue of the PMC. The demand of property tax of PMC, which was a sum of Rs. 4 crores before enforcement of this new system of assessment, has been increased to Rs. 50 crores in the financial year 2008-2009. But due to lethargic attitude of collection staff of PMC, the collection of property tax has not reached even 50% as yet .As such, it may be said that the impact of this new system of assessment is not as per expectations.

As far as convenience to Tax Payers due to this new system is concerned, the provisions regarding self assessment has not been widely circulated among the tax payers, resulting which



they are not able to get full benefit of this system. This required to be widely circulated amongst the taxpayers, so that they could not be netted in the trap of middlemen.

10.6 Use of Modern Technology The PMC has taken the initiative to computerize its functioning, but it is in initial stage. The taxation Department is still not computerised.

10.7 Impact of JNNURM Reform The main source of income of PMC comes from Property Tax. But the achievement of Property tax reform is not so encouraging as the machinery for imposing and collection of Property Tax in the PMC has not been geared up properly. As such the impact of new system of assessment of property tax on JNNURM is not at all visible.

10.7.1 Self Assessment System

After formulation of rule by the State Government under section 130 of the PMC Act, 1951, the Corporation in excise of its power under Section –124 of PMC Act, 1951 asked the owner of the holding for self assessment of their building and submit the details in duplicate in concerned circle of PMC or in the designated bank where the tax is to be deposited. A Notification issued in this regard by the PMC is annexed as Annexure-VIII. But public awareness in this regard is not up to the mark, as no proper advertisement of the system has been made at the city level.

10.7.2 Collection Ratio

The collection ratio of Municipal Tax in PMC is very poor, which is evident from the table given below: -

Table 10.5: Demand and Collection – PMC (Rs in Crores)

Financial Year Demand of Municipal Taxes

Actual receipt of Municipal Taxes

Collection Percentage

2004-05 35.36 13.87 39% 2005-06 37.74 21.12 56% 2006-07 41.51 15.38 37.1% 2007-08 45.67 5.66

(Half year) 12%

Source: PMC

The table shows that except in the year 2005-2006 the collection of tax never crossed even 40% of total demand. This is failure of management in respect of augmentation of its own resources.



10.7.3 Coverage ratio

The Coverage ratio of assessment of property in PMC is very poor .As per details obtained from the PMC, the circle wise details of assessed holdings upto 2007-2008 are as such: - Table 10.6: Circle wise Number of Assessed Holding-PMC

Circle of PMC Number of assessed holdings New Capital Circle 59,008 Bankipore Circle 36,000 Patnacity Circle 40,000 Kankarbagh circle 26,000 Total 1,61,008

Source: PMC

But recently it has been reported that the total number of assessed holdings have reached 1,71,147.

Though the PMC has mentioned in its budget forwarding in the year 2007-2008 and repeated it in 2008-09 that nearly 1 Lakh holdings in the city un-assessed but it has been come know that not less than 1 lakh 25 thousand holdings are still un-assessed .As such it is evident from the self assertion of PMC that only 61% holdings in this city are assessed and 39% holdings are still un-assessed whereas actual percentage of un-assessed holdings is very high. In the circumstances achievement of goal of reforms under JNNURM is far beyond the reach.

10.8 Innovations, Replicability and Sustainability No doubt, the innovation of this new system of assessment has increased the income of urban local bodies in the state including the PMC, but to obtain a sustainable result, an all round efforts are required from every stakeholders either they are personnel of taxation department of urban local bodies or tax payers of the city.

10.9 Issues / Problems

10.9.1 Administrative Issues

From administrative point of view the imposition and collection machinery in the Municipality should be well efficient. As this work is technical in nature, so the thorough knowledge of system as well as its technicality must be known to the officers and staff engaged in municipal tax administration. The P.M.C. has engaged at present following officers and staff in it tax administration department.



Table 10.7: Staff Deployment in Property Tax Department-PMC

Name of circle Number of assessed holdings

Personnel of Taxation Deptt. Number of holdings per tax collector

Revenue Officer Tax collector

1 2 3 4 6 New Capital Circle 59,003 1 44 1,112 Bankipore circle 36,000 1 24 1,500 Patna city Circle 40,000 1 24 1,667 Kankarbagh Circle 26,000 1 18 1,444

Source: PMC

Out of 110 Tax collectors 42 are not the salaried employees of PMC. They are working as commission agents having neither proper knowledge of Municipal Tax Administration nor any serious accountability towards PMC.

There is no post of Tax Daroga or Tax Inspector to supervise the work of Tax Collectors. It is not at all possible for a single Revenue Officer to monitor and control work of the entire army of Tax Collectors. A proper administrative set up is necessary for efficient running of tax administration department of PMC, which is entirely shattered in these days.

10.9.2 Financial Issue

Finance of the PMC is totally based upon Property Tax, which is not properly managed at present. The share of property tax is 90% in the total revenue receipt of PMC from its own sources. As such its proper management is essential.

It is a good sign that the present Municipal Commissioner of PMC has taken a keen interest to gear up its Tax Administration Department. Recently he has suspended and started departmental proceeding against 13 Tax Collectors for poor collection and dismissed two Tax Collectors for negligence of their duty. It is also reported that the Municipal Commissioner has warned the remaining Tax Collectors, that if they collect less than the targeted 60% amount, they will be dealt with the same fate as their colleague. The warning of the Municipal Commissioner has brought a very positive effect on the collection of property tax and has raised it from Rs. 3.50 lakhs per day to Rs.15 to 20 lacs per day at present. Efforts should be made to maintain this trend.

It is a fact that the major portion of salary of municipal employee as well as other establishment costs are being met from the revenue collected by the PMC from its own resources, out of which substantial portion comes from property tax. Due to poor revenue receipt salary and arrear dues of the employees have not been paid for which they have recently planned to pressurise the PMC administration through the threat of strike. Having realized the gravity of situation the PMC has asked to State Government for a grant of at least 65 crores to clear up the arrear demand of its staff.



But such government grants are not the proper solution of the problem. The PMC must have to improve its financial position by augmenting its own financial resources of which the Property Tax is at the top of the list.

10.9.3 Legal Issue

Legal issue is the most important issue in connection with imposition and collection of Property Tax. As far as the imposition of Property Tax is concerned, earlier this was being levied in Patna city Municipality under Section 82(1) of The Bihar & Orissa Municipal Act, 1922.

After conversion of Patna city Municipality into PMC, the power of levying tax vested in the Section 123 of the PMC Act, 1951. All most same provision of the Bihar and Orissa Municipal Act 1922 regarding taxation was replicated in the PMC Act, 1951 But in the year 1993 the State Government framed a rule under Section 227 read with sub-section (1) and (2) of Section 130 of the PMC Act, 1951 for levying the property tax. Though this rule of taxation of property was also based on the Annual Rental Value of the holding but criteria of determination of ARV were totally changed .It was to be decided on the basis of location, kind of building and its use and at the rate categorized per sq. feet. No doubt it was a more transparent method of taxation, which later on took the shape in the section-127 of the Bihar Municipal Act, 2007 but certain good provisions which were people friendly as well as essential have been left out while enacting the Act .For example in the section 83,84(2), 91 of the Bihar and Orissa Municipal Act, 1922 and Section 124 and 145 of the PMC Act, 1951 there were certain Power of Restriction on the imposition of tax as well as certain Power of Exemption of tax vested in the Municipal Board that have been taken away in the newly enacted Bihar Municipal Act,2007 .Thus even in the exceptional circumstances the Municipal Board can not exercise its option any way .

Moreover there were specific provisions for Revision of tax after every 5 years in Bihar and Orissa Municipal Act, 1922 as well as in the PMC Act, 1951 but this provision has been taken away in the Bihar Municipal Act, 2007.

In the Bihar and Orissa Municipal Act, 1922 there was a provision for hearing the Revision Petition of the tax payers by a Committee consisting of two Ward Commissioners of different wards and two tax payers representing two different wards as well as one officer in the rank of Deputy Magistrate nominated by the District Magistrate. The decision of this Committee on “Objection of Revision Petition” was to be treated as final. But in the PMC Act, 1951 the power of hearing the Objection/ Revision Petition” has been vested in the Chief Executive Officer. Now in the Bihar Municipal Act, 2007, the same provision of the PMC Act, 1951 has been replicated. The Municipal Board has got no right to see these Revision / Objection Petitions”. It shows that the Act, which was more democratic in 1922, became too authoritarian in 2007. As far as “Collection of Tax” is concerned section-155 to 164 of the Bihar Municipal Act 2007 deals with this subject. There is a provision for sending quarterly demand notice to tax payer. But the Municipality never takes trouble to send demand notice to tax payer, resulting, which the tax became, arrear. In Patna the meter readers of Patna Electric Supply Undertaking use to serve electric bills (which may be called demand notice) to every consumer in every month but PMC. is not able to send demand notice to tax payer even quarterly.



If tax payer do not pay the tax even after serving of notice there were provisions in the Bihar and Orissa Municipal Act, 1922 for issue of “Distress Warrant,” Seizure of Moveable Property” and to sell the property for realisation of arrears along with current demand. But in the Bihar Municipal Act, 2007 no such provisions has been made but a single provision has been made regarding formulation Bylaws by the Municipality, which will be approved by the State Government. No rule or byelaws have been made in this regard either by the Government or by the Municipalities as yet.

In the circumstances there are only two ways to realize the arrear demand from taxpayer, i.e. either through Certificate Case or Money Suit. In the matter of Certificate Case, the prior permission of District Magistrate is essential, where as in the matter of Money Suit; the deposit of court fee as well as Talwana is a difficult task for the Municipality. Due to bad financial condition, municipalities avoid to file these cases to minimize the expenditure on account of Court Fee or Talwana. If certain cases are even filed without court fee and talwana, these are being kept pending and later on dismissed due to fault .It is also a fact that cases of crores of rupees of revenue of different department are lying pending in certificate cases in the various Courts of District Magistrate. Recently the State Government has instructed the District Magistrate to hear the Certificate Cases at least two days in a week, so that the cases may be disposed off speedily. But too much expectation can’t be made in this regard. The Municipality should not create such situation to file a certificate case or money suit.

10.9.4 Community /Social Issues

The Community expects better civic amenities from the municipal authority but it cannot be provided without money. No doubt the sincerity and dedication to duty of Municipal personnel is essential but without proper equipment and facilities they cannot serve the society as per their expectation. The Municipality used to get money as tax and fees from resident of the town and if the urban resident do not pay the taxes in time, they may expect but cannot get the proper civic facilities. The state Government used to give grant and loan to Municipality for the infrastructure development or employment generation schemes not for the day-to-day expenditure of Municipality in connection with providing different civil services.

As such a proper rapport with the resident of town and Municipal authority is most essential, so that the people may realize that the money, which is being collected from them in the shape of various taxes and fees, are properly being utilized for their benefit. The role of municipal authority in this regard is very important.



10.10 Conclusions No doubt the notification of State Government dated 13 August 1993 through which Assessment of Annual Rental Value of Holding Rules, 1993 came into effect, brought a significant change in the method of levying property tax. Later on this Rule has been incorporated in the Bihar Municipal Act, 2007. But certain good provisions regarding imposition and collection of property tax as explained in the previous sections, which existed in the Bihar Orissa Municipal Act, 1922 were not incorporated in the Bihar Municipal Act, 2007. These must be incorporated in the Bihar Municipal Act 2007 for proper administration of this assessment system. Moreover, it is also essential that keeping in view the improvement in the collection of property tax, either a suitable amendment be made in the Bihar Municipal Accounts Rules (recovery of tax), 1951 in accordance with the Bihar Municipal Act, 2007 or a new rule for recovery of taxes be notified immediately.

In conclusion, it may be said that the Assessment of Annual Rental Value of Holding Rules, 1993 that later on was incorporated in the Bihar Municipal Act 2007 was a very good innovation in terms of assessment of property tax. However the system has not been properly administered and benefits of reform have not been sustained over time.

11. Gal Nis Tax.

1. General Tax.

2. Water Tax.

3. Sewerage Tax.

8. Fire Tax.

9. Tree Tax.

PUNE

7. Special Tax and Large Property Tax.


5. NR Education Tax.

6. Rojgar Hami.




10. Gal Labh Tax.

12. Street Tax.

4. Education Tax.


Map

1. Online Bill Printing.

20%

49%

31%

PT Octroi Non Tax Receipts

19%

81%


120.00111 55

Per Capita Property TaxGrowth in PT Collected

2. Facility for online payment through Bank: Kiosk Mavhine.

3. Formation of Special Recovery Committee.

4. Correction for Rental Properties.

5. 40% Discount Cases.

6. Software system.

8. Use of GIS based system.


7. To do justice to cooperative housing.

20%

49%

31%

PT Octroi Non Tax Receipts

19%

81%


0

50

100

150

200

2004-05 2005-06

119.92

174.99

Prop

erty

Tax

(in C

rore

s)

0

2

4

6

8

10

12

14

2004-05 2005-06

5.15.4

Ass

esse

d Pr

oper

tie

(inLa

khs)

300

350

400

450

500

550

2004-05 2005-06

535.2

475.65

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2002-03 2003-04 2004-05 2005-06

111.55

79.96 73.32 73.59

Col

lect

ion

Effic

ienc

y (

%)



11.0 Pune Municipal Corporation

11.1 Introduction Municipal Corporation of Pune was established as a state government department with the objective of providing community services throughout the city. The Municipality serves a large urban population of 4.5 million people and aims at refining their programs with the growing demands of the occupants of the city. The Pune Municipal Corporation (PMC) since the day of its formation is committed to provide the best of civic amenities in the entire state and including this, the corporation has to serve a lot many tourists as well. The city is highly developed, as it is a center for many industrial activities as well as top educational institutes and universities. It is also growing in terms of software and I.T. developments. PMC provides numerous services broadly divided into obligatory and discretionary.

11.2 Urban Governance There were 5 zones in 2005-06 and from 2007-08 onwards there are 53 divisions and 600 sub-divisions to calculate Annual Rental Value. So far the statutory power of the Pune Municipal Corporation to revise tax is concerned, only the General body has the powers to revise the various taxes, but in BMC Act 1949, there is no provision to revise A.R.V. At present, PMC has 14 wards and 7 Sampark offices.

The Corporation is empowered for assessing the properties within the Corporation area, unless otherwise directed by the State Government, for the purpose of imposition of property tax.

The role of state government in case of enforcement of property tax at the local body level is confined to Education & Employment Guarantee Cess & Larger premises in Property Tax.

Taking into account holiday problems of citizens, PMC has organized to collect payments in all ward offices and CFC centers on weekly and Government holiday basis from January 2008. The office timing for the same has been increased by on hour in the morning session.

The historical order no. 127 dated 07-Jul-2007 has been issued from the office of the Commissioner stating that the rate for estimated rent has been highly increased from the year of 2005-06, finalized the policy to correction of the bills for the same. Before 2006-07, the property tax for offices was being charged as per NRV rate, but from 2007 onwards, the charging has been as per residential rate.

Since 2003, the Standing Committee and General Body have approved the discounts structure for slum rehabilitation properties.



PMC has to discharge both the discretionary and obligatory functions under The Bombay Provincial Municipal Corporations Act, 1949. The PMC under this Act of Chapter VI has to perform all the 25 duties and exercise all the powers specifically imposed or conferred upon him by this Act or by any other law for the time being in force. The obligatory service of the department includes construction of schools, health centers, ensuring sufficient water supply to all. Its discretionary services include maintaining public spaces like parks, museums and community halls. Besides this, it also works for the rehabilitation of slums and squatter areas.

11.3 Organizational Framework of the PMC

This flow chart reflects the organizational set-up of the Property Tax Department in the Pune Municipal Corporation.

Figure11.1: Organisational Structure, Property Tax Department, PMC

Source: Pune Municipal Corporation

The above chart shows the formal and structural aspect of the assessment administration. From the chart, it is evident that the Assessor /Collector of Taxes is the Head of the Department who is equivalent to the level of Deputy Commissioner. Assessor and Collector is assisted by the Assistant Assessor and Collector of Taxes which enable him to run the entire property tax

Assessor & Collector of Taxes

(HOD)

Assistant Assessor & Collector of Taxes

Divisional Section Inspector

Assessment Section

Computer Division

Tax Collection

14 wards, 7 Sampark Offices

Offices Online payment

ICICI/ HDFC

Cosmoss Bank

42 kiosk machines

ATM cheque Drop Boxes

PMC Main Server Room



department with the support of the divisional heads which includes Assessment Section, Computer Division, Tax Collection unit of 14 wards and 7 Sampark Offices.

11.4 Overview of Finances The Corporation’s revenues are both from internal and external sources. Internal sources consist of revenue accrued by the PMC on its own, and external sources consist of revenue from other sources such as grants and loans from the Central as well as the State Government.

The major sources of Revenue Income include: Property Tax Assessment and Collection; Octroi; Development Charges & Building Permission; Water Charges and Other Income whereas the major sources of Non-Revenue Income include; Grants for Development; Other Grants and Loans. Beside this, PMC not only includes property tax but also include a variety of service taxes and cessess. Services tax includes water tax, sewerage tax, scavenging tax, drainage tax, conservancy tax, education tax, fire tax, education cess and tree cess. Components of Taxes in Pune are: General Tax, Water Tax, Sewerage Tax, Tree Tax, Gal Labh Tax, Gal Nis Tax, Education Tax, NR Education Tax, Rojgar Hami, Street Tax, Special Tax and Large Property Demand Tax.

The total income during the period of 2004-05 to 2006-07 of the Pune Municipal Corporation with special reference to the Property tax can be seen from the following table:

Table 11.1: Income Statement- PMC (Rs in Crores)

Description Year 2004-05 2005-06 2006-07

Octroi 324.95 (49.53)

442.01 (49.47)

552.52 (50.43)

Property Tax 119.92 (18.28)

174.99 (19.59)

188.59 (17.21)

Development Charges & Building permission

99.77 (15.22)

140.78 (15.76)

205.51 (18.76)

Water Charges 72.51 (11.06)

88.61 (09.72)

89.61 (08.18)

Other Income 38.76 (05.91)

47.04 (05.26)

59.36 (05.42)

Total Revenue Income 655.91 (100.00)

893.43 (100.00)

1095.59 (100.00)

Grants for Development 9.73 13.35 3.42 Other Grants 39.61 40.12 58.20 Loan 0.00 100.00 0.00 Total Income 705.25 1046.90 1157.21


(Figures mentioned in the parenthesis refer percentage to total revenue income.)

The above table reveals that Property tax (PT) and octroi together constitute the main source of revenue income of this local body. In Maharashtra, there are 6 ULBs who have Octroi, viz., Pune,



Kolhapur, Mumbai, Thane, Nashik and Pimpri-Chinchwad. In this city where octroi is not abolished, PT & Octroi has become reliable and productive source of revenue for urban local body. The financial support provided by the PT is substantial. Although the Development Charges & Building permission were very close to PT in 2004-05 & 2005-06 and even cross the PT during the year 2006-07. The relationship between receipts and expenditure is distinct and accountable. The details can be viewed from the table below. Table 11.2: Details of Receipts and Expenditure-PMC (Rs in Crores)

HEADS YEARS 2004-05 2005-06 2006-07 2007-08

Opening Balance 222.72 273.89 342.52 369.42 REVENUE RECEIPTS Revenue receipts (Tax) 444.87 617.00 741.11 923.52 Revenue receipts (Non Tax) 211.03 276.43 354.48 478.73 Total own source revenue 655.90 893.43 1095.59 1402.25 State transfers on revenue account 42.76 43.71 58.20 20.84 Total revenue receipts 698.66 937.140 1153.79 1423.09 CAPITAL RECEIPTS Transfers from Revenue Account 286.61 672.82 560.69 1087.23 CFC transfers State government transfers on capital account 6.58 9.75 3.42 3.79 JNNURM Grant 60.58 287.54 Institutional loans 100.00 Others Total capital receipts 293.19 782.57 624.69 1378.56 REVENUE EXPENDITURE Total revenue expenditure 511.19 542.13 656.00 786.37 CAPITAL EXPENDITURE 273.22 419.76 506.10 749.73

Total expenditure 784.41 961.89 1162.10 1536.10 Transfers (rev +capital) 49.34 53.46 61.62 24.63 Rev. Trans +JnNURM grants 42.76 43.71 118.78 308.38


11.5 Status of Demand and Collection Table 11.3: Demand and Collection-PMC (Rs in Crores)

Year Demand Collection Collection Efficiency (@ current figures)

Arrears New Demand for the Year

Total Demand

Arrears New Collection for the Year

Total Collection

2002-03 N.A 146.01 N.A 34.13 162.87 197.00 111.55 2003-04 N.A 167.27 N.A 41.27 133.75 175.03 79.96 2004-05 N.A 185.41 N.A 41.58 135.94 177.53 73.32 2005-06 N.A 261.77 N.A 49.76 192.64 142.40 73.59




The information obtained from the Pune Municipal Corporation on Demand and Collection from the period of 2002-03 to 2005-06 does not reveal the complete picture as the authenticity and accuracy of data arrears could not be made available for the calculation purpose. The Pune Municipal Corporation (PMC) has provided the data for the period mentioned above. From 2003-04 onwards, the percentage collection of property tax is getting lower. This low efficiency hampered the progress of the city and is against the JnNURM mandatory reform. Hence, collection efficiency needs to be improved by using punitive measures and also by promoting tax compliance with the handsome package of incentives. However, political receptivity to reforms happens to be the most important and critical variable.

All this is the formal and structural aspect of the assessment administration. From the chart, it is evident that the Assessor and Collector of Taxes is the Head of the Department who is equivalent to the level of Deputy Commissioner. Assessor & Collector is assisted by the Assistant Assessor & Collector of Taxes, which enables him to run the entire property tax department with the support of the divisional heads, which includes Assessment Section, Computer Division Tax Collection unit of 14 wards and 7 Sampark Offices.

11.6 Property Tax System in Pune Municipal Corporation (PMC): Figure 11.2 PT System in Pune Municipal Corporation

Property Tax Effective Administrative Systems

Property tax Assessment

As per com

pletion

certificateSelf

Assesse -

ment

Inspection

Through

Property

Tax

Inspector

Property Tax is one of the main sources of internal revenue other than the Octroi in this Urban Local Body. In Pune Property Tax is assessed by the Self Assessment, Inspection through Property Tax Inspector and as per the completion certificate.



The system of property taxation followed in the Pune Municipal Corporation is a rent-based rateable valuation system. The Procedure/Method/ for the Assessment of Property Tax is to fix the ratable value of any building or land for the first time a public notice as per rule 13 of taxation rules Chapter 8 of BPMC Act 1949 is required to be published against the amount of ratable value entered in the Ward Assessment Book. Thereafter the Commissioner shall issue the public notice; a special written notice to the owner/occupier of the said premises is to be given informing him that any complaint against the same to be made within 15 days from the service of special notice as per rule 15 of taxation rules Chapter 8 of BPMC Act 1949. If the Assessee files a complaint against the said RV notice of hearing in respect is required to be given for investigation at the time & place so fixed as per rule 17 of taxation rules Chapter 8 of BPMC Act 1949.

The Formula for Assessment of Property Tax- in order to fix the ratable value rule 7 of the taxation rules of BPMC Act 1949 provides as under-

1. In order to fix the ratable value of any building or land assessable to a property tax there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten per cent of the said annual rent, and the said deduction shall be in lieu of all allowances for repairs or a on any other account whatever.

2. All plant & machinery contain or situate in or upon any building or land & belonging to any of the classes specified from time to time by public notice by the commissioner, with approval of the corporation, shall, be deemed to for part of such building or land for the purpose of fixing the ratable value thereof under sub-rule (1) but, save as aforesaid, on account shall be taken of the value of any plant or machinery contained or situated in or upon any such building or land.

3. A statement setting out clearly the process a plant & machinery specified from time to time by the commissioner under sub-rule (2) and describing in details what plant & machinery falls within each such class shall be prepared by the commissioner under the direction of the standing committee & shall be open to inspection at all reasonable hours by member of the public at the chief municipal office.

Table 11.4: Municipal Corporation Tax Rate-PMC

Sl. No. Tax Name Rate of Tax

1. General Tax 1. Taxable Amount Rs. 1 to 2000 12%

2. Taxable Amount Rs. 2001-5000 18%

3. Taxable Amount Rs. 5001-20000 25%

4. Taxable Amount Rs. 20001 to ahead 35%

2. Fire brigade Tax 0.75% of Taxable Amount

3. Safai Tax 13% of Annual Taxable Amount’s

4. Vruksha Tax 1% of Annual Taxable Amount’s

5. Jallabh Tax 2% of Annual Taxable Amount’s

6. Water purification Tax 4% of Annual Taxable Amount’s




7. Road Tax 5% of annual Taxable Amount’s

8. Water Tax

(Pune P.M.C.)

(1) Resident Taxable Amount

Rs. 1 to 1000 Rs. 900/-

Rs.1001 to 3000 Rs. 1000/-

Rs. 3001 to 5000 Rs. 1100/-

Rs. 5001 to above Rs. 2500/- or 2Taxable Amount, whichever is less

(2) Non Resident

Rs. 1 to 1000 Rs. 500/-

Rs.1001 to 3000 Rs. 1000/-

The total taxable income from Resident and Non Resident. From this Those who are not taken Water Connection Commercial income are applied.

(3) Religious Places

Rs. 1 to 500 No Tax

Rs. 501 to 1000 Rs. 900

Rs. 1001 to 3000 Rs. 1000

Rs. 3001 to 5000 Rs. 1100

Rs. 5001 to above Rs. 2500 or 25% of TAmount whichever is less

These tax rates are applied to those religious places which have no water meters. But those who have water meters they are applied on the basis of water meters.

(4) Flood Affected Residential area (BibaDhankavadi, Rehabilitation)

Rs. 300 Annual total

Water Tax Extended PMC Pure Filtered Water Supplied Villages

Home Use

If separate

connection Rs. 1000 P.A.

Home Use

If water is from

Nal-Kondala Rs. 750 P.A.

(3) Non Home Use Rs. 1500 P.A.




If Water Supply Old Grampanchayat is conAccording to Reg. No. 8 Registered Entries

Rs. 375 P.A. or previous Tax, whichever is greater

9. Special Safai Tax Hotels, Hospitals, Marriage Halls, and Restawho’s Taxable Amount of Rs. 10000/- or than 10000/-

10% of Taxable Amount


The following two tables show the details of the number of assessed properties, total number of properties including the total billing properties up to March 2008:

Table 11.5: Number of Properties-PMC


It is evident from the above table that there is a constant increase in the number of assessed properties as well as in the total number of properties. A brief picture is emerged from the table mentioned above that in assessment; the residential building is more favoured against the rest of the properties, which may be due to less corrupt practice and easy billing in the residential area.

11.7 Concession/Exemptions Use of Solar Energy, Rain Harvesting, Earthworm Fertilizer Scheme, out of three, the 5% discount is given if the taxpayers implement any one scheme and 10% discount is given if any two schemes are implemented. Concession at the time of assessment is not mentioned in the act but as per the resolution no. 5 dated 3/4/1970 notification Poona Municipal Corporation is giving 40% concession while fixing ratable value in case of occupation by the owner himself. 10% or 5% concession is in addition to 40% concession from 2007-08 onward and no locality wise exemption is allowed in the PMC. The exemptions are given only to those who fulfill the conditions given in section 132 of the BPMC Act 1949. Since there was no provision in the Act, the concession withdrawn and raised the property tax revenue. Specific administrative tasks to help increase revenues from the property tax include simple tax mapping, enumeration, self assessment, improved records management, simplified collection and close monitoring systems. These improvements can be introduced in a phase manner.

Year Total no. of Properties (Approximation)

Number of Assessed Properties

2002-03 3,50,000 2,95,752 2003-04 4,25,000 3,72,721 2004-05 5,50,000 5,00,141 2005-06 6,00,000 5,33,390



11.8 Issues In this section, efforts have been made to review some important issues pertaining to Pune City, viz. legal issues, institutional and policy issues; tax structure and taxation process; administrative interventions, rationalization of exemptions; improvement in property record management system; improvement in tax collection & recovery; monitoring system; simplicity for users; accountability mechanism etc.

Administrative Issues and Reforms: 1On account of some defects in the assessment systems because of the poor administrative system, the following problem arises:

Scope for subjective assessments in a corruption-prone environment

Scope for excessive use of discretionary powers leading to possible confrontation between the assessor and assessee.

Non-transparency in the assessment process

Self-assessment is not possible, and onus of annual assessment is on the local body, which is required to issue notice of demand every year.

Higher social costs due to litigation, and consequent delayed recovery of taxes

Lack of a systematic computerized data base-resulting in a large proportion off the properties being outside the tax net.

Lack of efficient mechanisms for detecting and follow up on defaulters.

Benefits from reforms: If the reforms are carried out in a comprehensive manner the benefits expected are:

Increased revenue for the urban local body and buoyancy in revenues to keep pace with inflation and increased costs; simple to understand, transparent citizen-friendly systems and processes, System capable of self assessment and ease of payment by the property owners, Lower (possibly almost nil) litigation and associated costs, decrease in revenues locked up for years in litigation, Cleaner administration, increasing the faith and trust of citizens in the ULB and councilors and Good data base and information systems to enable better tax planning and policy making by the ULB.

Legal Issues and Reforms: 2 Over the last few decades a series of judgments of the Supreme Court have given severe setback to the revenue aspirations of municipal bodies, since they are required to assess annual value for the levy of property tax on the basis of “fair rent” as determined under the relevant Rent Control Act, irrespective of the actual rent received, or whether a fair rent has been determined by a Rent Control Court or not. Even in the cases where the municipal law provided for a non-obstante clause, the court ruled that the municipal authorities should not consider the actual rent as the only yardstick. It has been held that reasonable determination of rent by the municipal authorities need application of mind, keeping in mind all relevant factors 2 JNNURM Reform Primers – Property Tax.



and circumstances. This immediately leads to a scope of subjective assessment and discretion at the level of the assessing officer, as well as subjective interpretation by the appellate authority.

The Tax Adalat also plays an important role in the property tax system of PMC. It was observed that the property owners visit PMC on daily basis for resolving the property tax related problems. For resolving the same Tax Adalat has been started initially three days in week and now one day i.e. Thursday in week. For resolving the tax related problem of the citizens in incorporated outside 23 villages in PMC areas, Tax Adalat has been started at the Ward Office level. Due to tax Adalat, the pending cases since last 5 to 10 years have been resolved and these citizens are paying tax immediately.

Formation of Special Recovery Committee: For achieving recovery target, PMC has formed ward wise special recovery committee and provided them one vehicle from December 2007.

To do Justice to Cooperative Housing Society: It has been decided to charge Property Tax as per residential rate for Entertainment Hall, Society Office, Badminton Hall, and Swimming Pool in cooperative housing society.

40% Discount Cases: The approximate 2000 pending & 40% discount cases since last five years has been resolved.

Correction for Rental Properties: The pending cases of conversion from rental to self-occupied owners have been resolved.

11.9 Reforms under JNNURM

Property tax is one of the most under exploited tax instruments and to strengthen it, some issues and the reforms are essential because reforms in a property tax system can only be successful, if improvements are carried out covering all aspects of property tax including the slums. In PMC, the focus has been especially on the slum improvement. Property Taxation for Slum Rehabilitation Schemes; in 2003, the Standing Committee and General Body have approved the discounts structure for slum rehabilitation properties. In 1st 10 years 20%, next 5 years 50%, next 5 years 80% and 20th year 100%. This discount structure is being implemented in current year and bills for total 881 properties have been already prepared.

There is no role of the state government to enforce the property tax at the local body level except on Education and Employment Guarantee Cess and larger premises on Property Tax.

PMC developed the new & advanced software system, data cleaning for correction of arrears, double bills and remove the unused data.

The first and foremost need of the PMC is to amend the BPMC Act of 1949.



Revision of A.R.V after 5 years.

40% concession of A.R.V should be withdrawn.

Whosoever pays the property tax in the month of April, 5% concession should be given.

Any citizen, who do not pay the property tax in time lead to increase the notice fee rate and apply 10% interest in arrears amount.

Reform of the property tax systems is one of the mandatory reforms under JNNURM. The guidelines emphasize the need for enhancing coverage of property tax regime to all properties liable to tax and the PMC has achieved it 100%. The PMC has also adopted Self-Assessment System of Property Taxation along with use of GIS – based Property Tax System. Near about 1.5 lakhs properties are linked with GIS base and approximately the survey of 3.5 lakhs properties has been completed from 01/04/2005 to 31/03/2007. Physical Survey, GIS Mapping with Building Footprints & Data connectivity is in the operation with the support of 125 surveyors. So far as periodicity for revision of guidance values is concerned, it has already been done. With respect to Dispute Resolution Mechanism, Tax Adalat/citizens courts have been established to resolve the property tax issues.

11.10 Innovative Measures Adopted for Property Tax Collections

Online Bill Printing: As the citizens were not receiving property tax bills regularly, online

bill printing facility in each and every ward office and CFC center was started from 03-Dec-2007 to 16-Jan-2008. By using this facility total 3923 bills were issued and total 1937 citizens paid immediately.

Facility for online payment through Bank: Provided online payment facility to all citizens of Pune within and outside country through HDFC Bank and ICICI Bank. Additional payment of Rs. 1.5 crores has been received in a year as a result of the above.

Kiosk Machine: Total 42 Kiosk machines have been established. Citizens can pay the property tax through these machines. The service is available 24 hours. The following year, plan to establish additional 200 Kiosk machines have been made.

Property Tax Payment in Government and Weekly Holiday: Taking into account holiday problems of citizens, PMC has organized to collect payments in all ward offices and CFC centers on weekly and Government holiday from January 2008.

Bill Format Changed to make it more users friendly.

Improvement in Computerization: Training related to Property Tax Computerization has been given to all employees as and when required.

Improvement in Database Server Connectivity: Most of the time Citizen Facility Centers used to issue annual payment receipts to citizens, but due to problems with the database server, the same payment was not updated on server. It was directly affecting the citizens. It was also affecting the recovery of taxes through the CFCs. From 19-May- 2007 to 06-Jul-2007, updating of 50318 properties was done on the server.



Use of GIS based system: Near about 1.5 lakhs properties are linked with GIS base and approximately the survey of 3.5 lakhs properties has been completed from 01/04/2005 – 31/03/2005. Physical Survey, GIS Mapping with Building Footprints & Data connectivity is in the operation with the support of 125 surveyors.

Water Tax has been cancelled on Open Plot

Property Tax from Mobile Towers: Since 2002 several mobile companies have built the mobile towers. PMC started charging the property tax for 800 mobile towers through which it has earned around Rs. 12 crores.



12.0 Summary of Findings and Way Forward

12.1 Context The present study documents the existing status of the property tax system in the 10 cities. After having arrived at a clear picture of the relevant characteristics of the property tax system in the cities, the present chapter summarises assessment mechanism, status of revenue generation, the reform steps taken and identifies issues. Based on this analysis, it suggests guidelines to move towards a more user friendly, simple and transparent property tax system, which will also lead to an improved financial base for the ULB’s.

12.2 Comparison of Findings To take a comprehensive view with regard to the shortcomings in the present system of property tax and introduce reforms, a cumulative performance improvement of all aspects of the process is required. This covers mapping, valuation, assessment, collection, monitoring and enforcement.

The findings have been summarised under both qualitative and quantitative aspects. The former one details the reform components specified for property tax for JNNURM. Broadly these cover:

Valuation and Assessment; Rate and Base Structure; Tax Administration, and Citizen Interface Mechanism.

The latter summarises the key indicators, which determine the financial strength of a municipality i.e. collection efficiency, share of property tax to own source revenue, share of property tax to total revenue receipts, per capita property tax etc.

Valuation and Assessment:

As per the JNNURM mandate, achieving full coverage of assessed properties and full recovery of taxes is the priority that can be achieved within the existing system also. The present system of assessment in a considerable number of municipalities is non-transparent and not capable of self-assessment. In this context, government had recommended the adoption a formula based system, which minimizes discretion at field level and is cable of self-assessment. Each state/ULB decides on it, given its local circumstances. The Unit Area System, which is a simple arithmetical system of calculation of property tax based on covered area of the building and the unit area value or unit area tax, (possible for any citizen to self-assess), is seen in Ahmedabad, Bangalore, Chennai, Indore and Patna. Among these, Ahmedabad has implemented area-based system on the basis of rate per square meter of carpet area from 2001-02, Bangalore has implemented the area based assessment where the revaluation of the properties in the city zones is on an annual rental base but the approach features assessment under a capital value system. Chennai has adopted the reasonable letting value (area based assessment) for arriving at the annual value since 1993-



94.Indore shifted to the zone based self-assessment system (which is based on Unit Area) with effect from 1997. Patna follows the area based annual rental value method.

Bhubaneswar, Hyderabad, Ludhiana and Pune have adopted the ARV method of assessment. In Hyderabad, the ARV system of assessment is in vogue for residential areas since 2006. The area based unit rate system of assessment for non-residential properties has come into effect from October 2007. Ludhiana has ARV method of assessment for land and buildings, which is fixed, based on prevailing market rate. The system of assessment followed in Pune is rent-based rateable valuation system for land and buildings.

Kolkata still follows the annual rental value system of assessment on land and buildings, which is calculated on annual rent (including service charges), which the property is expected to fetch. But the adoption of self-assessment based unit area method for property tax has been approved by the State Legislature and will be implemented shortly.

Table No12.1: Method of Assessment in Selected Cities

Method of Assessment Cities 1 Area based Method Ahmedabad, Bangalore, Chennai, Patna and

Indore 2 Annual Rental Value Bhubaneswar, Hyderabad, Ludhiana and Pune 3 Annual Rental Value but

implementation of UA passed in Legislature-shortly to be implemented

Kolkata

Municipal Valuation Committee (MVC) is appointed by the Government consisting of experts and persons experienced in urban administration, taxation, and representatives from the local body. The factors chosen for the classification of properties into homogenous groups must be clearly specified in the statute and the process adopted should be objective and transparent A Municipal Valuation Committee is appointed to oversee this process. Although the Unit Area Method is seen in Ahmedabad, Bangalore, Chennai, Patna and Indore, the MVC has not been provided for in any of them. Among the cities of Bhubaneswar, Hyderabad, Ludhiana and Pune, which have adopted the ARV method, only Bhubaneswar has provided for an MVC in its Orissa Corporation Act but not appointed it as yet. Kolkata has set up its MVC in 2007 to oversee its changeover into the new system of assessment of area-based method from ARV method.

Different multiplicative factors (Table 12.2) can be prescribed to adjust the location and group wise unit area value to individual premises level. These factors for grouping of properties should also be clearly defined in the statutory framework eliminating any scope for subjectivity. They include structure, use, age, occupancy, street etc.



Table No12.2: Factors for Grouping of Properties in Cities

Cities Factors for grouping of properties 1 Ahmedabad Location factor, Age factor, Type of building,

Occupancy factor 2 Bangalore Location, Usage of Building, type of construction and age of building. 3 Bhubaneswar Location, Usage of Building 4 Chennai Plinth Area, Basic Rate, Usage of Building, Occupancy (Owner or Tenant),

Age of the Building and Nature of Construction. 5 Hyderabad Type of construction, Nature of use, Plinth area and Age of building. 6 Indore Quality of construction, type of use, age of building and location for the

purpose of the determination of ALV. 7 Kolkata Frontage width, occupancy nature, structure type, age, usage of building. 8 Ludhiana Usage of building 9 Patna Location, type of building and Usage

For most cities location, usage and age form the common multiplicative factors used to adjust the group-wise unit area value to respective premises level.

Rate and Base Structure:

Basic tax rates should not be very high to compensate for low annual assessed value of the property and it should be reasonable enough for citizens not to resist payment. For most Municipalities, the upper and the lower rates are provided in the Act and particular adjustments are made depending on the cost to provide basic services (Table 12.3).

Ahmedabad has progressive scale of tax rate, where categorization of residential and non-residential rates has been differentiated. For the former it is Rs 10-Rs 40/sq. meters annually while for the latter it is Rs 20-Rs 80 /sq. meters annually. Similar cases occur in Chennai, Kolkata, Indore and Pune. The minimum and maximum rate specified in Chennai varies between Rs. 0.50 to Rs 2.00 per square feet for residential areas and between Rs3.00 to Rs 9.00 per square feet for non-non-residential areas. A per the Act, in Indore, the tax rate varies between a minimum of 6% of annual letting value (ALV) and a maximum of 10% of ALV. The Corporation has fixed the rates thus; for those properties having Rs 12,000 as ALV, the tax rate is exempted; where ALV is between Rs 12,000-Rs 36,000, the rate is 6%; where ALV is between Rs 36,000-Rs 60,000, the rate is 8% and where the ALV is above Rs 60,000, the tax rate is 10%.

In Kolkata, has a more complex categorization of tax rate based on annual valuation of the property. In case of residential properties, if is annual valuation (AV) of property is less than Rs. 600, tax rate is 11% of AV; when AV is more than Rs. 600 and less than Rs.18, 000, the tax rate is 12.2%; If AV is more than Rs. 18000, tax rate is 40% of AV. For commercial/ non-residential properties, apart from these rates an additional surcharge of 50% of tax is applied. In Pune the rate of tax is determined based on the taxable amount of the property. When taxable amount is between Re 1 to Rs 2000, rate of tax is 12%, when it is between Rs 2001 to Rs 5000, the rate is



18%; for Rs 5001 to 20,000 it is 25% and for tax amount between Rs 20001 and above, the rate is 35%.

Table No12.3 (a): Basic Tax Rate in Selected Cities

Cities Flat rate vs progressive sliding

scale Basic Tax Rate

1 Ahmedabad Progressive scale Residential buildings Rs 10-Rs 40/sq. mts per year Non-residential building: Rs 20-Rs 80 /sq. mts per year

2 Chennai Progressive scale Residential/sq. ft MinimumRs.0.50 Maximum Rs.2.00 Non Residential/sq.ft MinimumRs.3.00 Maximum Rs. 9.00

3 Indore Progressive scale Rs.12000/- Exempted Rs. 12000 – 36000: 6% Rs. 36000 – 60000:8% Above 60000:10%

4 Kolkata Progressive scale Residential If AV <600, tax rate is 11% of AV. If AV>600 and <18,000, tax rate is 12.2% If AV>18000, tax rate is 40% of AV. Commercial/Non-residential Additional surcharge of 50% of tax

5 Pune Progressive scale Rs 1-2000=12% of AV Rs 2001-5000=18% Rs5001-20, 000=25% Rs 20001and above=35%

Bangalore has flat rate of tax where 20% is charged on residential properties and 25% on non-residential properties along with a 34% cess on property tax in both cases. This is also seen in Ludhiana and Patna. Ludhiana has a flat rate of 10% of ARV for all rented residential properties and 15% of ARV for all industrial and commercial properties. In Patna property tax is charged at 2.5% of ARV. The composite figure along with latrine and water tax and education and health cess is 9% of ARV.



Table No12.3 (b): Basic Tax Rate in Selected Cities

Cities Flat rate vs progressive

sliding scale Basic Tax Rate

1 Bangalore Flat Rate Residential- 20% 34% cess on PT Non- Residential-25% 34% cess on PT

2 Ludhiana Flat Rate Residential: 10%, Industrial and Commercial: 15%

3 Patna Flat Rate Holding [email protected]% of ARV Latrine Tax@ 2% of ARV Water Tax@2% of ARV Education [email protected]% of ARV Health [email protected]% of ARV Total@ 9%

The tax rate is on a progressive scale for residential properties in Bhubaneswar and has a flat rate for non-residential properties. For the former, if annual value (AV) of property is less than1 lakh, a tax rate of up to 15% of AV is charged while if annual value of property is less than a lakh, up to 10% of AV is charged. For residential properties on rent, holding tax is levied at 17.5% of the annual value. The same is seen in Hyderabad also. For residential properties, slab rate of taxation is applied as under: range of annual rental value up to Rs. 600/, exemption from paying tax; between Rs. 601-1200/, 17%; between Rs.1201-2400/, 19%, between Rs.2401-3600/, 22% and above Rs. 3600/, the rate applied is 30%. Property tax is levied a flat rate of 30% on ARV of non-residential buildings.

Table No12.3(c): Basic Tax Rate in Selected Cities

Cities Flat rate vs progressive sliding scale

Basic Tax Rate

1 Bhubaneswar Progressive scale for Residential property Flat rate for Non-residential property.

If AV<1 lakh-up to 15% AV If AV>1 lakh-up to 10% of AV Residential Holding Tax: 10%, Latrine Tax: 2.5%, Street Light: 5% Total – 17.5% Residential on Rent Holding Tax is levied @ 17.5% of the Annual Value.

2 Hyderabad Progressive scale for Residential property Flat rate for Non-residential property.

Residential Upto Rs. 600/: Exempted Rs. 601-1200/: 17% Rs.1201-2400/: 19% Rs.2401-3600/: 22% Above Rs. 3600/: 30% Non-residential Flat 30% of ARV



Exemptions provided in the Act in many states often provide loopholes in the tax structure for avoiding tax. The list should be kept minimum and sufficient safeguards should be built to ensure proper implementation of provisions. Even under exemption, a service user charge should be levied to cover the cost of basic services being provided.

In Ahmedabad, exemptions are given only to religious places but they have to pay water and sewerage charges. In Bangalore, it applies to charitable institutions, shelter for animals, destitute, orphanages schools for the physically challenged, hospital, educational institution (but not residential quarters), public worship places, marriage halls and burial grounds. In Bhubaneswar, only government buildings (other than residential), schools, hospitals and government cultural institutions are exempted from paying tax. Chennai gives exemptions to public worship places, marriage halls, ancient monuments, charitable hospitals and dispensaries of railways and state government, burial and burning grounds, orphanages homes and schools for deaf and dumb, recreational lands and government properties. As per the HMC Act, Hyderabad allows exemptions to ex-servicemen, religious places of worships, charitable institutions and educational institutions.

The list of properties under exemption in Indore include buildings and lands for educational purposes, public worship and public charity, public parks, play grounds; buildings and lands owned by or vesting in the Union Government; the State Government, the Corporations, freedom fighters, retired members of defense services and their widows, blind persons, abandoned women and mentally incapacitated persons. In Kolkata heritage property, place of worship, parade ground, burial ground, crematorium, charitable institutions, new buildings with single unit assessment for 3 years and ex-servicemen (25%) are exempt from paying property tax. In Ludhiana, residential building constructed on plot measuring not exceeding 125 sq. yards, buildings and land used for educational purposes to run government schools and hostels, religious buildings, charitable medical institutions, orphanages etc. are exempted from paying tax. Patna gives exemptions to only places of public worship and charitable places, buildings used as dharamshala, a mortuary and a burial or burning ground. In Pune exemptions are given only to those who fulfill the conditions in the BPMC Act 1949 which are building and lands solely used for purposes connected with the disposal of the dead, building and lands or portions thereof solely occupied and used for public charitable purpose and building and lands listed in the Government used solely for public purpose and not used for purposes for trade or profit.

Tax Administration

Many of the existing administrative and tax information systems, which can undergo improvements, (to increase revenue from tax) often do not require legislative change or large investments. The Property Identification Code (PIC) would be a unique number to identify the property and could locate the property uniquely in terms of ward, the colony and the block and perhaps floor or flat. This database should ideally be linked to a GIS system and digitized urban maps. This entire data should be computerized so that linkages can be established with other data in the Corporation such as building sanctions, trade licenses as well as with the self-assessment and revenue collection data.



A centralised property information maintenance system, which gives an identification code to each of the properties and facilitates the process of crosschecking the defaulters making the system more efficient, is present in Ahmedabad. Efforts have been initiated for mapping the properties using GIS. A full-fledged GIS powered property tax database will be operational by 2009-10(Table 12.4). In Bangalore, primary survey of all properties has been done to arrive at property identification number for quick computing of PT liabilities. In Bhubaneswar, computerization of property tax records is not in place as yet. Currently records are maintained manually (more than 80,000 assessed till date), but there is an urgent need for the same to improve the levels of tax recovery.

Bangalore is the only city where the database of all properties within the city’s municipal limits through GIS mapping has been completed. Chennai has completed 95% of its survey of properties, which have been computerized in a database but is yet to link it to mapping through GIS. Hyderabad has a computerised property tax database with each property having a unique Property Tax Identification Number (PTIN). Digital mapping through GIS survey has been completed and verification is in progress. In Indore there exists a property tax index where number of each property has been introduced, which is the property identification number or service number. GIC enabled property mapping is not present yet.

Table No12.4: Status of Computerisation and GIS in Selected Cities

Cities Computerisation and Property

Identification Code GIS and Tax Mapping

1 Ahmedabad Present Ongoing 2 Bangalore Present Completed 3 Bhubaneswar Not Present Not present 4 Chennai Present (95% survey completed) Not present 5 Hyderabad Present Digital mapping completed, verification

ongoing 6 Indore Present Not present 7 Kolkata Ongoing Mapping completed, verification being

done. 8 Ludhiana Not Present Not present 9 Patna Not Present Not present 10 Pune Present Initiated

Ludhiana and Patna do not have a computerised database of assessed properties. Digitisation through GIS has also not been initiated yet.

Kolkata has a computerised database for properties but it is not centralised. The ward wise listing has been done. The local body is in the process of changing over to the Unit Area method of assessment due to which, GIS mapping of all properties is also taking place. The process is expected to be complete by 2009-10. Pune has property identification number as the computerised database of properties is completed but this is not linked to the property mapping through GIS.



Under a self-assessment system the onus for filing property returns on a regular basis and paying the tax on/within a prescribed time schedule on the basis of the self-assessment should be on the owner. But this is not always seen in the municipalities, as self-assessment in some cities has not been made mandatory. It is still optional, leaving the municipalities to raise demand notices and send to owners for payment of tax. This does not always occur regularly, leading to low revenue collection.

Table No12.5: Status of Self-Assessment in Selected Cities

Cities Self Assessment Onus for Assessment 1 Ahmedabad Present but not mandatory; beyond

self-assessment- auto assessment. On the Corporation

2 Bangalore Present but optional On the property owner

3 Bhubaneswar Not present but provided in the Orissa Corporation Ordinance of 2003

On the Corporation

4 Chennai Present On the owner/occupier/user

5 Hyderabad Present On the owner

6 Indore Present On the owner

7 Kolkata Not Present but approved by State legislature.

On the Corporation

8 Ludhiana Not present On the Corporation

9 Patna Present but not mandatory On the owner

10 Pune Present On the owner

A self-assessment where the onus of payment is on the owner does not ensure that all assessed properties have come under the tax net. The presence of a fully computerised property database will help to ensure monitoring. This will also take care of suppression of information or filing of wrong information on part of the owner in order to avoid paying the correct amount of tax. In most Corporations it leads to penalty being imposed on the owner, which is percentage of the tax



amount suppressed as in Hyderabad (Table 12.5). In some cities it leads to disconnection of certain basic services like water supply etc. as in Ahmedabad.

In most municipalities tax payment gateways and agencies for administration of tax are now multiple to facilitate payment by citizens. All these would help in better administration of property tax in the long run. These include online payment through websites, banks, civic centers of the Corporation, through Resident Welfare Associations, ATM machines, etc. Only in the Bhubaneswar, Ludhiana, Kolkata and Patna the options for payment are relatively limited to collection centers in the corporation offices and banks.

Monitoring and enforcement are crucial to realizing tax dues of any municipality. Most of the municipal Acts have made adequate provision for enforcement and collection but in actuality, suitable strengthening of the enforcement process is required in most cities to bring about higher realization of dues. Few cities have system of incentives; rebates and disincentives to reward honest tax payers and penalize defaulters. Ahmedabad, Hyderabad, Pune, Indore and Kolkata are some of them. Bangalore, Bhubaneswar, Ludhiana and Patna are some of the cities where tax enforcement and monitoring mechanism needs to be strengthened.

Citizen Interface Mechanisms

Improving the interaction between local body and citizens can lead to efficient compliance and wider acceptance of reforms. These can be ensured through citizen friendly systems, transparency, easy access to information and stakeholder consultations. This is more important for local bodies, which are undergoing or have recently undergone a change in the property tax system as in Kolkata and Bangalore respectively. The two cities have changed their system of assessment to the area-based method. In most cities the RWAs play a very active role by acting as the interface between officials and citizens.

Grievance Redressal Cells have been set up in most cities to tackle disputes on fast track. System of online lodging of complains is also present in some cities, which is linked to citizens’ charter. Sometimes it is routed through RWAs to get speedier results.



The findings based on indicators to determine the financial strength of the municipalities have been summarized in Table 12.6.

Table No12.6: Indicators to Assess Financial Health of Selected Cities

The above table gives a comparison of certain key indicators, which can throw light on the financial strength of the local body. As such comparison should be made among cities, which have general property tax and those, which have composite property tax. Among the 10 cities, 5 of the cities are each distributed in the two categories mentioned. Ahmedabad, Bhubaneswar, Kolkata, Patna and Pune have a composite property tax while Bangalore, Chennai, Hyderabad, Indore and Ludhiana have general property tax.

CITIES % Collection (on current demand)

% Share of PT to Rev. Rect. (own sources)

% Share of PT to Tot. Rev Rect.

% Share of own sources to Tot. Rev Rect.

Per Capita PT

No. of Assessed Properties Per 1000 Population

Assessment method of PT

Ahmedabad 136.69 10.4 3.9 38.16 597.46

400 UA

Bangalore

76.1 84.72 53.84 63.55 598.67

150 UA (recently introduced CV method)

Bhubaneswar 68.22 36.73 9.2 25.42 99.66 185 ARV Chennai 104.02 78.06 40.77 52.09 670.64 124 UA Hyderabad 72.74 41.38 39.11 94.76 249.59 146 ARV/UA Indore 18.87 42.66 24.72 57.93 295.27 15 UA Kolkata 59.54 44.9 23 51.3 628.6 111 ARV Ludhiana 69.68 18.37 17.51 95.31 270.43 62 ARV Patna 25.21 92.98 23 25.13 80.95 125 UA Pune 73.59 19.59 18.67 95.33 475.65 213 ARV



Figure No12.1: Share of Property Tax to Own Revenue Sources in Selected Cities

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The share of property tax to own source revenue are high in cities like Bangalore, Chennai, Hyderabad, Kolkata, Bhubaneswar and Patna indicating that property tax is the primary source of revenue among tax sources while other tax and non-tax sources are low in these cities. The situation is vice-versa in cities like Ahmedabad, Ludhiana, Indore and Pune where in most cases octroi being the primary source of revenue, property tax share becomes low.

Figure No12.2: Per Capita Property Tax in Selected Cities

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Some of the cities having higher own source revenue shares also have higher per capita property tax as seen in Bangalore, Chennai and Kolkata indicating better collection efficiency. Others such as Ahmedabad, Pune and Indore also show high per capita property tax due to high coverage ratio and general system improvement after having adopted reforms, which have enhanced revenue collection.

Figure No12.3: Share of Property Tax to Total Revenue Receipts in Selected Cities

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Pune and Ludhiana has a very buoyant source of octroi income due to which its total revenue receipts are very high but the share of property tax to it is very moderate. It also has a higher percentage of tax receipts than non-tax ones as compared to non-octroi levying cities. Bangalore, Chennai and Hyderabad all non-octroi levying cities, show very high share of property tax receipt to total revenue receipt. This could be attributed to a low functional base, which leads to low tax base. Hence the property tax share becomes very high.



Figure No12.4: Share of Own Revenue to Total Revenue Receipts in Selected Cities

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Dependency on grants/transfers from state is low where the share of own source revenue to total revenue receipts is high. Pune and Ludhiana, both have a buoyant source of octroi income due to which this share is very high. In the same cities (as is seen in Figure 12.1) thus, the share of property tax to own source revenue is considerably low. Hyderabad followed by Bangalore have shown good initiatives in reforms under property tax, due to which their share, in spite of being a non-octroi cities, is higher. Bhubaneswar, Patna and Kolkata among others, have a higher dependency on government transfers/grants, for which the above share is low.



Figure No12.5: Collection Efficiency in Selected Cities

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The collection efficiency (on current demand) among cities vary from 50% to 80% except for over 100% in Ahmedabad and Chennai in recent years and as low as 18% and 37% in Indore and Patna respectively. Poor collection in Patna could be attributed to, among others, absence of a strong and integrated database of properties, lack of an effective or committed administration and weak enforcement etc. Higher collections are also directly linked to the rate structure as applied to property categories, higher coverage of assessed properties, efficient monitoring and enforcement mechanism. This is seen in Bangalore, Hyderabad and Pune.



Figure No12.6: Per Capita Assessed Property in Selected Cities

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The above parameter is an indication of efficiency in the system of assessment to bring in as many people as possible in the tax net. The higher the number of assessed properties, the higher the coverage. It also speaks of a high quality computerized database of the properties backed by digitized mapping through GIS. Ahmedabad tops the list at 400 properties per 1000 population where this process is almost complete, followed by Pune, Indore and Bhubaneswar. Bangalore and Hyderabad, in spite of being two cities who have adopted reforms and undergone system improvements to enhance revenue generation, has moderate to low assessed properties per 1000 population.

12.3 Issues

The prominent issues emerging from the above findings are legal, financial or administrative in nature. Administrative issues in most cities are related to the assessment mechanism while financial issues are related to billing and collection mechanism. The legal issues revolve around implementation and compliance as per provisions in the Act. Technical Issues in most cities arise because of lack of computerized database of properties as also property mapping through GIS both of which will lead to an improved assessment and increase in tax revenue.



12.3.1 Administrative Issues

One of the important and common administrative issues, which have recurred in the analysis of the 10 cities, is the lack of a rational and user-friendly assessment mechanism (categorization of properties etc.), which has resulted in opposition from taxpayers and hence poor compliance in payment. This has been seen in Hyderabad, Indore, Kolkata and Ludhiana.

Lack of proper enforcement mechanism has resulted in low collection efficiency in Patna, Bangalore, Ludhiana and Bhubaneswar. Lack of capacity building among staff as well as inadequate number at the zonal level, which is also seen in Ahmedabad, could be possibly attributed to this issue.

Optional self-assessment as well as voluntary disclosure results in two issues- one where the onus for assessment is on the Corporation, who is required to issue annual demand notice. Since this does not happen regularly it leads to delayed or irregular payment. Secondly, when the onus for assessment is on the owner, false disclosure of property related information (area, use etc.) leads to lower tax liability on them. This is seen in Pune, Kolkata, Bangalore, Patna and Ludhiana.

Inadequate monitoring of the payment process results from improper system of record keeping and reporting as also procedural delays resulting from incorrect bills being generated and sent to tax payers, by the Corporation. This has been seen in Bangalore, Patna, Kolkata, and Ludhiana etc.

Weak grievance redressal mechanism and lack of any linkage between the redressal system and citizen’s charter leads to non-adherence to complaints by the officials in the corporation. This leads to delays in settling dispute resolution, in turn affecting collection as is seen in Bhubaneswar, Kolkata, Patna etc.

Lack of decentralised payment gateways leads to low collection efficiency, as payment of tax becomes a time consuming affair for citizens. This is seen in Ludhiana, Bhubaneswar and Patna.

12.3.2 Legal Issues

Legal issues primarily revolve around implementation of the provisions of the Act or the lack of it. This is seen in Patna where certain users friendly provisions for criteria of determination of ARV that is location, kind of building and its use, the rate categorized per sq. feet etc. which were mentioned in section 127 of the Bihar Municipal Act 2007, were left out while implementing it.

Optional SAS leads to complication in the tax system, as it is not mandatory in the Act. As mentioned earlier, voluntary disclosure leads to false property information being submitted by the owner to evade tax. This has been seen in Bangalore, Indore and Kolkata.

Presence of long term tenancy and rent control properties as seen in Kolkata and Patna has lead to low valuation for low rent. Abolishing rent control, de-linking property tax from rent control regulations or amending the Rent Control Act to fix rent as per prevailing market rent has been adopted in certain municipalities to overcome this.



Municipal Acts in many of the cities provide for construction in certain portion of the land while tax is levied on the entire land and not only the built up areas. This has lead to dispute among citizens/Resident Welfare Associations and Corporation in Indore, regarding payment, as it is argued by the former that services are provided only for the built up area.

Owner occupied properties being exempted from paying tax reduces the tax base as is seen in Ludhiana.

12.3.3 Financial Issues

The primary financial issue involves billing and collection related aspects. Independent and centralized billing mechanism and decentralised collection centers are not found in certain municipalities like Ludhiana, Patna, Kolkata and to certain extent, Bhubaneswar. This leads to lower realization of revenue.

Large number of exemptions provided for in the Act in certain municipalities has lead to reduced tax base, which is seen in Bangalore, Chennai, Indore, Pune, Ludhiana etc.

Disputed cases /Litigation also add to revenue loss due to subsequent delay in recovery of taxes. The annual revenue loss in some cities where a large number of properties are under litigation or have some dispute regarding their tax is quite high. This is seen where the assessment system is complex adding to the taxpayers’ problem. This is seen in Kolkata, Ludhiana, Chennai, Indore etc.

Differential tax rate prevails under most ARV systems. Higher tax rate (in slab system) yields more tax than for those cities with flat rates.

12.3.4 General/Social/Technical Issues

In certain municipalities, the implementation of e-governance for computerization of key functions viz. financial accounting & budgeting, integrated GIS/MIS for tax collection etc is not complete or is not present. This leads to an inefficient system of realizing property tax revenue, which is seen in Ludhiana, Patna, Bhubaneswar etc.

Lack of a centralized and computerized database for properties along with absence of mapping through GIS, results in a large number of properties being outside the assessment net. This is seen in Patna, Ludhiana, Bhubaneswar, Pune, Kolkata and Chennai.

An efficient mechanism for detection and follow-up on defaulters is also lacking in most municipalities, which have resulted in low collection. This is seen in Bangalore, Kolkata, Patna, Ludhiana and Indore.

Patna has been a very good innovation in terms of assessment of PT. However, the system has not been properly administrated and benefits of reform are not sustained overtime.

12.4 Impact of JNNURM Reform As mentioned earlier, reform of the property tax systems is one of the mandatory reforms under JNNURM. The guidelines emphasize the need for:



1. Proper mapping of properties using a GIS system so that the ULB is able to have a full record of properties in the city and bring them under the tax net,

2. Making the system capable of self-assessment (that is a system which is formula driven and where the property owner can calculate the tax due), and

3. Improving collections to achieve at least 85% of demand. All the selected cities are JNNURM cities.

Some of the objectives through which the above may be achieved are as follows:

Bring all properties in the tax net;

Make the system of assessment transparent and simple so as to be easily understood and interpreted by all property owners;

Introduce system improvements to increase efficiency in tax administration focusing on the entire value chain – coverage, billing, collection and enforcement;

Enable property owners/occupiers to calculate tax liability on their own, file self-assessment forms and pay tax on that basis, putting the onus upon the assesses to pay tax on time;

Reward honest taxpayers and penalize defaulters;

Build in buoyancy and elasticity in the tax base to achieve revenue growth.

The status of implementation of the reform in the sample cities varies from very good to moderate. Most cities that are close to achieving or have achieved the collection and coverage ratio of property tax as specified under JNNURM have done so through reforms in the system be it legal, institutional, financial or administrative. Most cities whose revenue increase has not been substantial are in the process of changing over to the new method of assessment the area-based system, as specified in the MoA also.

Patna, Indore, Chennai, Hyderabad, Bangalore and Ahmedabad have area-based system. Bangalore had introduced it on voluntary basis and has recently introduced capital valuation system. In Ahmedabad Property Tax is determined based on area, type of property, zone and year of construction. Whereas in Patna, Hyderabad, Indore and Chennai the annual value is first estimated based on area, use type of property, age etc. The Property Tax is calculated applying a rate to the annual value. Kolkata and Bhubaneswar have amended their municipal laws in introduce Unit Area Method but have not implemented it. Pune and Ludhiana continue to have the ARV system.

Only Bhubaneswar has provided for an MVC in its Orissa Corporation Ordinance of 2003 but not appointed it as yet. Kolkata has set up its MVC in 2007 to oversee its changeover into the new system of assessment of area-based method from ARV method.

Of the 10 cities, computerized database of properties and property identification code is not present in Patna, Bhubaneswar and Ludhiana. It is present in most other cities and is ongoing in Kolkata and Chennai.



GIS and tax mapping has not been completed in most cities and they are in various stages of completion. Bhubaneswar, Chennai, Indore, Ludhiana and Patna are yet to initiate efforts in this direction, while Ahmedabad, Hyderabad, Bangalore, Kolkata and Pune are in various stages of survey and verification of GIS mapping. Increase in number of assessed properties is also directly related to the introduction of GIS based property mapping.

Chennai, Hyderabad, Indore and Pune have self-assessment where the onus of assessment lies with the owner; Bhubaneswar and Kolkata (onus of assessment as yet on the Corporation) have not implemented SAS but their Act provides for it; Ahmedabad, Bangalore (onus on Corporation) and Patna (onus of assessment on owner) have self-assessment but it is not mandatory while Ludhiana does not have self-assessment.

Collection efficiency is highest among the cities in Ahmedabad followed by Chennai, Hyderabad, Bangalore and Pune. Indore, Patna and Kolkata have comparatively lower collection pointing to a pressing need for reforming the system.

Coverage of properties in terms of number of properties assessed per 1000 population also shows Ahmedabad in the first place followed by Pune, Indore and Bhubaneswar.

Among the selected cities, Ludhiana has made least progress in implementation of the PT reforms. Hence, using UNCHS definition, this city is not a best practice.

12.5 Major Guidelines On the basis of the various issues summarised above, the following guidelines are addressed below:

General Guidelines

Increasing efficiency of Tax administration through internal system improvements, using enforcement measures, strengthening information base etc.

Citizen’s participation is required for any important decision and time bound process for the finalization of any change in the system by the local body through Resident Welfare Association (RWA).

Outsourcing of various services namely billing, collection, online payment etc. to improve efficiency and cost effectiveness in the assessment, collection and monitoring in the system.

Assessment Mechanism:

Change in assessment system with introduction of some form of formula based self-assessment. Self-assessment should be made mandatory which should be publicized through public notice etc. as already seen in Pune. This will also avoid unnecessary defaults by property owners.

In order to detect under assessment in declaration of area, wrong declaration in the usage of properties and wrong declaration (as indicated in case of Indore, Bangalore) on the type



of construction, the Corporation should conduct periodic surveys, random sampling of Self Assessment Forms, cross checking with license data. The occupants of the properties could be asked to sign on the findings of the survey to make the survey results more creditable.

With regard to tax collection and enforcement, the enforcement measures, revenue forecasting and targets, accountability and performance measures for employees etc. should be maintained as is being practiced in Hyderabad and Pune.

Tax enforcement must be a priority. The self-declared property tax liability should be randomized for inspection. The gross negligence in not conducting verification has resulted in loss of revenue that the Corporation can ill-afford. There should be two levels of auditing self-declared returns-one a sample and another detailed verification, which has been introduced in Bangalore.

Legislative Amendment:

Earlier Acts where PT assessment basis is ARV need to be amended wherever required to facilitate bringing about all those changes, which will reform the process, improve the system and enhance the revenue generated under property tax.

The exemptions/ reductions should be reduced to make the tax structure more meaningful. The benefits given to the self- occupied properties should be eliminated to enhance the Property Tax amount as seen in Ludhiana.

A policy should be implemented to award the incentive to the prompt taxpayer (through lottery system) and likewise the defaulters should be penalized for late payment.

A Redressal Cell, (which is commonly known as Correction Unit in Indore) like in IMC, comprising of some officials of the local body, should be established within the Corporation to ensure speedier disposal of complaints/representations. Besides this, such cells may be opened in every zone to make the function more decentralized.

Information System:

Computerisation of the property tax system (which is an important component of e-governance reform), should take place in phases beginning with issuing of demand notices, billing, collection and issuing receipts and preparing DCB statements.

Property survey, mapping and GIS should take place together as a package to ensure full coverage of properties. This should also include reassessment of under assessed properties.

Billing and Collection:

The systems of assessment, collection and information should be made transparent, citizen friendly and system improvements need to be improved to increase efficiency in tax administration focusing on the entire value chain – coverage, billing, collection and enforcement.



Increasing realisation by improving the tax administration process, correcting the tax structure where required, increasing tax rates if necessary etc.

Collection system can be improved by making them more users friendly. This can be done by providing payment gateways like web-based system of tax collection using online payment, banks, longer and flexible timings for collection etc.

Regular revision of rates is required among all categories of properties as per the prevailing market conditions in the cities.

Delayed recovery of tax as well as loss of revenue incurred due to dispute and litigation cases need to be taken care of in order to improve collection.

MoUD has issued a primer on PT reforms under JNNURM and the same is included in Annexure 12.2

12.6 Conclusions Reforms can only be successful if they build upon existing systems, as they are tools for a more effective management system. Bringing in a change in the system is a two way process; it is as much a commitment of the municipal employees towards the reforms as it is of the people towards realising the benefits from the reforms in the long run.

The study reveals that the ARV based assessment system wherever still existing needs to be changed. However this will only be possible once it is linked with administrative reforms simultaneously. Tax assessment system should be simple and easily understandable by the taxpayers. The JNNURM reform agenda has given the cities the impetus required to bring in changes, which will improve the property tax system and in turn increase revenue. Political will with a strong institutional framework is compulsory to ensure success of tax reforms. It is essential to communicate the benefits to the people and ensure their support in bringing about this change.



Bibliography

Brigadier Dhawan, H. K (Retd.) Presentation to Shri Parimal Rai IAS Chairperson NDMC and Officers Of NDMC (2007), New Delhi ‘Unit Area Method of Property Tax’.

City Municipal Council, Bangalore: (2002), ‘Guideline Book on Self-Declaration of Property Tax System’.

Guidelines for Property Tax Reforms:(2005), Gujarat Municipal Finance Board, Urban Development and Housing Department, Secretariat, Gandhinagar.

Government of India, Ministry of Urban Development (2009): Hand Book on Service Level Benchmarks for e-governance in Municipalities.

Government of India (2010-2015), Report of the 13th Finance Commission.

Government of Karnataka, (1995-96 to 2005-06); Bruhat Bangalore Mahanagara Palike Financial Reports.

ICRA Advisory Services (2003): “Assessment of Property Tax Innovation in Ahmedabad, Bangalore, Hyderabad, & Patna”, New Delhi.

India Infrastructure Report (2004) – Ensuring Value for money (2004): “Reforming Property Tax in Patna Municipal Corporation: A Critical Analysis”, by Mukesh P. Mathur, Oxford University Press, New Delhi.

IPE Limited (2007): ‘Improved Creditworthiness Of Bhubaneswar Municipal Corporation’ under Indo- USAID FIRE-D Project.

Lall, Somik V. and Deichmann, Uwe (2006): “Fiscal and Distributional Implications of Property Tax Reforms in Indian Cities”, New Delhi.

Mathur, O.P, Thakur, D and Rajadhyaksha, N (2009): Urban property Tax Potential in India, NIPFP, New Delhi

Municipal Corporation of Hyderabad (2002): “Reforming Property Tax: The Approach by Municipal Corporation of Hyderabad”, By P. K. Mohanty, Hyderabad.



National Seminar on Reforming the Property Tax System in India: (2002), Compiled Papers, NIUA-UNDP.

National Institute of Urban Affairs (2003): “Property Tax Reforms in Uttaranchal”, New Delhi.

National Institute of Urban affairs and UNDP (2004): “Reforming the Property Tax”, New Delhi.

National Institute of Urban Affairs (2004): “State Finance Commissions’ Recommendations and Follow-up Actions Thereon”, New Delhi.

Property Tax Primer under JNNURM, MOUD, 2008.

Pune Mahanagarpalika: 2008-09, Andazpatrak

Pune Mahanagarpalika: 2007-08, Budget Report

Punjab Government Gazette (Extraordinary), 1993

The Kolkata Municipal Corporation (2005): “ An Approach toward Unit Area Method of assessment”, Kolkata.

The Delhi Municipal Corporation (Property Taxes) Byelaws, 2004 along with Unit Area System Of Property Tax Assessment

The Guidelines and Procedure on Self-Assessment Scheme of Property Tax in Municipalities along with Karnataka Municipalities Amendment Ordinance 3of 2003.

The Punjab Municipal Corporation Act, 1976 along with Punjab Municipal Corporation Law (extension to Chandigarh) Act, 1994, with Bare Act, 2008.

Vaidya Chetan, ‘Seminar on Local Governance for Millennium- With Special Reference to Financial Reforms; Experience, Problems and Prospects’ (2000): “Property Tax Reforms in India: Some Issues” Mumbai.

154 Annexure

Annexure 1 Recommendations of 13th Central Finance Commission (CFC) on Property Tax The 13th CFC had sponsored a study on Urban Property tax Potential in India and it was carried out by NIPFP (July 2009). This study had three objectives : first, to assess the present property tax collection in the country; second, to estimate the potential for property tax in all the municipalities in the country; and third to suggest how this potential can be best exploited by municipalities. A detailed survey was conducted in 36 large municipal corporations, each with a population of more than 1 million. This formed the basis of the analysis. These cities account for 35 per cent of the urban population in the country. The main findings of the study are outlined below : Present Status of Property Tax Collections

i) Property tax revenues in the 36 largest cities in India are estimated at Rs. 4522 crore, yielding per capita revenue of Rs. 486. In these cities, on an average, property tax revenues constitute 23 per cent of the total municipal revenues and 28.5 per cent of own source revenues. There are large inter-city variations in property tax revenues, with the Mumbai Municipal Corporation registering per capita annual revenue of Rs. 1334 as against Rs. 25 for the Patna Municipal Corporation.

ii) Property tax revenues depend upon; (a) enumeration of properties in the

municipal tax register; (b) the collection rate; (c) the assessment and valuation system; (d) the extent of exemptions and (e) the level of tax rate.

iii) On all these counts, there are serious shortcomings in municipalities today

which hinder efficient collection. Absence of a formal count of properties in municipalities is one of the major handicaps in exploiting the true potential of property tax in India. The percentage of assessed properties actually paying taxes in this `large city sample’ was found to be 63 per cent, and it is estimated that this would amount to 56 per cent of the universe of properties. Even for the house properties actually assessed, poor collection efficiency at 37 per cent of demand for the sample, along with non-indexation of property values exacerbated the problem.

iv) The all-India collection of property tax yield blown up from the 36 city

sample is estimated to be between a low of Rs. 6274 crore and a high of Rs. 9424 crore, or between 0.16 and 0.24 per cent of the country’s GDP.

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Potential for Property Tax

i) It is clear from the low ratio, even within the 36 large city sample of assessed properties to the universe of all properties, and the low collection of demand ratio, that there is tremendous scope for improvement in revenue from property tax, even without increasing rates, and indeed, even without increasing rates, and indeed, even without any structural alteration of the basis of levy. However, because the observed percentages of tax collection efficiency cannot be extended to all urban areas from the sample, it is not possible to quantify the revenue increase to be expected by improving tax collection efficiency. It is urgently required that the municipalities in India complete formal registration of all properties, whether assessable or not. This needs to be followed by the complete assessment of all registered properties and collection of the demands raised on assessable properties at a minimum of 85 per cent efficiency.

How Best to Exploit the Potential

i) States should focus on improving coverage and collection efficiency. Property Tax revenues could increase to Rs. 22,000-32,000 crore, merely by bringing all cities to an 85 per cent coverage level and 85 per cent collection efficiency, without changing any other variables.

ii) States should establish a Central Valuation Board on the lines of the West

Bengal Central Valuation Board in order to standardize property assessment and valuation. Property values should be indexed and guidance values used.

iii) States should institute a GIS system for mapping all properties in cities which

will result in increased coverage.

iv) The Centre should introduce specific conditionality in JNNURM aimed at reducing the gap between the assessed and market value of properties.

Recommendations The CFC suggested that:

i) All local bodies should be fully enabled to levy property tax (including tax for all types of residential and commercial properties) and any hindrances in this regard must be removed.

ii) State Governments must put in place a state level Property Tax Board, which

will assist all municipalities and municipal corporations in the state to put in place an independent and transparent procedure for assessing property tax.

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The Board (a) shall, or cause to, enumerate all properties within the jurisdiction of the municipalities and corporations; (b) shall review the present property tax system and make suggestions for a suitable basis for assessment and valuation of properties; and (c) shall make recommendations on modalities for periodic revisions. The findings, suggestions and recommendations of the board will be communicated to the respective urban local bodies for necessary action. The exact model to be adopted is left to the respective state.

Annexure 2: Some Indicators of Property Tax in Selected Cities

CITIES Ahmedabad Bangalore Bhubaneswar Chennai Hyderabad Indore Kolkata Ludhiana Patna Pune Year 2007-08 2007-08 2006-07 2007-08 2005-06 2007-08 2006-07 2007-08 2006-07 2005-06 Population (lakhs)

50 75 8.81 43.43 75 18.39 45.8 18.7 19 40.5

Area (sq. kms)

464.00 226 135 176 625 165.17 187 159.37 109.2 430

PT Demand (crores)

218.54 590 12.87 280 257.35 287.75 483.58 72.57 37.74 261.77

PT Collection (crores)

298.73 449 8.78 291.26 187.19 54.3 287.9 50.57 21.12 192.64

% PT Collection 136.69 76.10 68.22 104.02 72.74 18.87 59.54 69.68 25.21 73.59

% Share of PT to Rev. Rect. (own sources)

10.40 84.72 36.73 78.06 41.38 42.66 44.90 18.37 92.98 19.59

% Share of Own Sources to Total Rev. Rect.

38.16 63.55 25.42 52.09 94.76 57.93 51.3 95.31 25.13 95.33

% Share of PT to Tot. Rev. Rect.

3.90 53.84 9.2 40.77 39.11 24.72 23.00 17.51 23 18.67

Per Capita PT 597.46 598.67 99.66 670.64 249.59 295.27 628.60 270.43 80.95 475.65

No. of Properties (lakhs)

14.10 13.00 5.91 5.28 3.57 5.07 2.14 2.03 5.60

No. of Assessed Properties (lakhs)

14.10 9.00 1.2 5.4 5.28 3.57 5.07 0.86 1.61 5.4

Assessment method of PT

UA UA(recently introduced

CV method)

ARV UA ARV/UA UA ARV ARV UA ARV

General/ Composite Property Tax

Composite General Composite General General General Composite General Composite Composite

Annexure 3

Property Tax Primer ULB Level Reform JNNURM

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1. The Reform One of the main objectives of the Constitution 74th Amendment is to make the Urban Local Bodies efficient units of self governance. For this the ULBs have to become autonomous and to depend more on their own revenues. Property tax is the single most important tax revenue source available to a ULB. Hence revenues from property tax have to show significant increase. Reform of the property tax systems is one of the mandatory reforms under JNNURM. The guidelines emphasize the need for a) proper mapping of properties using a GIS system so that the ULB is able to have a full record of properties in the city and bring them under the tax net b) making the system capable of self-assessment (that is a system which is formula driven and where the property owner can calculate the tax due) and c) improving collections to achieve at least 85% of demand. The objective of the reform should be to:

• Tap the full potential of property tax as a source of own revenue of the ULB • Make the system transparent and simple so as to be easily understood and interpreted by all

property owners • Eliminate/reduce subjectivity and discretion in assessment particularly at the field level • Enable property owners/occupiers to calculate tax liability on their own, file self assessment

forms and pay tax on that basis, putting the onus upon the assesses to pay tax on time • Remove existing inequities in tax burden on similarly placed or similarly used properties • Bring all properties into the tax net • Build in buoyancy and elasticity in the tax base to achieve revenue growth • Reward honest tax payers and penalize defaulters • Make the systems of assessment, collection and information citizen friendly • Introduce efficient mechanisms for speedy grievance redressal and dispute settlement • Introduce system improvements to increase efficiency in tax administration focusing on the

entire value chain – coverage, billing, collection and enforcement

2. Rationale for the reform

In most States the weaknesses and deficiencies in the current system of property taxation does not allow for full exploitation of the revenue potential of this tax. Property tax is one of the most under exploited tax instruments. To strengthen the financial autonomy of the local body a holistic reform of the property tax system is essential. The present deficiencies occur on account of the present assessment systems as also poor administrative and information systems currently in place. Rental Value Basis: The system of property taxation followed in most Municipal Acts is a rent-based rateable valuation system where the annual value or the annual rental value (ARV) of the property shall be deemed to be “the gross annual rent at which the land or buildings might, at the time of assessment, be reasonably expected to be let from year to year …” Capital Value Basis: In many Municipal Acts there is an alternative provision for assessment of properties (particularly those self occupied) on a capital value basis. The annual value is arrived at on the basis of estimated market value of land and cost of construction at the time of construction or acquisition. ARV restricted by Judicial Pronouncements: Over the last few decades a series of judgments of the Supreme Court have given a severe setback to the revenue aspirations of municipal bodies, since they are required to assess annual value for the levy of property tax on the basis of “fair rent” as determined under the relevant Rent Control Act, irrespective of the actual rent received, or whether a fair rent has been determined by a Rent Control Court or not. Even in the cases where the municipal law provided

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for a non-obstante clause, the Court ruled that the municipal authorities should not consider the actual rent as the only yardstick. It has been held that reasonable determination of rent by the municipal authorities needs application of mind, keeping in mind all relevant factors and circumstances. This immediately leads to a scope for subjective assessment and discretion at the level of the assessing officer, as well as subjective interpretation by the appellate authority. Other problems with the Rental based system: Besides the major issue above there are other problems with the ARV system:

• Rent deeds often suppress actual rent paid – with rent being collected in other forms like interest free deposits, partnership fees, charges for amenities and services

• Difficulty in arriving at hypothetical “rent” in the case of self-occupied properties, particularly residential properties which have never been rented out

• Problems of assessing properties like educational and medical institutions, clubs and entertainment places, hotels and guest houses.

Problems with a Capital Value based system: The system of assessment based on Capital Value has its own share of problems:

• In the absence of a free open market in land and property transactions, the purchase value of the property, particularly in metros, does not reflect the true “use” value of the property, but is more a speculative price

• Hence there is a tendency to under report transaction prices, to escape stamp duty and registration

• There is limited availability of a computerized data base of property transactions against which an objective assessment can be made

• Assessing staff are not professionally trained valuers to make scientific assessments in such cases

• Since the capital value is determined with reference to the date of acquisition or construction, the tax base gets frozen, and there is no buoyancy in the tax

• This also leads to wide disparities and inequity in similarly placed properties assessed at different points of time

• There is uncertainty in what category of assets in the property should be assessed (eg central air-conditioning systems, captive power generation systems)

Administrative deficiencies: Partly on account of the inbuilt deficiencies in the assessment systems noted above, and partly due to poor administrative systems in place, the present property tax systems have the following problems/drawbacks:

• Scope for subjective assessments in a corruption-prone environment • Scope for excessive use of discretionary powers leading to possible collusion between the

assessor and assessee • Non- transparency in the assessment process • Self assessment is not possible, and the onus of annual assessment is on the local body which

is required to issue notice of demand every year • Higher social costs due to litigation, and consequent delayed recovery of taxes • Lack of a systematic computerized data base – resulting in a large proportion of the properties

being outside the tax net • Lack of efficient mechanisms for detecting and follow up on defaulters

Benefits from reforms: If the reforms are carried out in a comprehensive manner the benefits expected are:

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• Increased revenue for the urban local body, and buoyancy in revenues to keep pace with inflation and increased costs

• Simple to understand, transparent citizen-friendly systems and processes • System capable of self assessment and ease of payment by the property owners • Lower (possibly almost nil) litigation and associated costs, decrease in revenues locked up for

years in litigation • Cleaner administration, increasing the faith and trust of citizens in the ULB and councilors • Good data base and information systems to enable better tax planning and policy making by

the ULB

3. Reform components Some Policy, Technical and Operational Considerations Need for Comprehensive Reforms: It must be emphasized that reforms in a property tax system will be successful only if improvements are carried out covering all aspects of property tax administration. The amount of revenue raised depends on the cumulative performance of all processes – identification, valuation, assessment, collection, discovery and enforcement. The reforms in the property tax systems should therefore cover:

a. Rate and Base Structure b. Valuation and Assessment Systems c. Tax Administration d. Citizen Interface Mechanisms

It would be useful to take a comprehensive view at the State level in regard to the deficiencies in the present system of property tax and the reforms needed in each of the above areas. In doing this, learning from best practices from other cities would be useful. The State may consider setting up a suitable Committee/Expert Group to carry out this exercise and give its recommendations. This would also help in highlighting any amendments to existing legislation of the State. The State could decide on which of the reforms would be most cost effective and prioritize the implementation of reforms accordingly. In the context of JNNURM the following should receive priority:

• Putting in place a comprehensive property data base (including a GIS system where needed) to ensure complete property mapping and bringing all properties under the tax net.

• Reducing exemptions and increasing coverage, including for slum settlements connected with municipal services

• Reducing ad-hocism in assessment • Putting in place payment systems, including online system, which will make payment of taxes

hassle free. • Proper system of tracking defaulters, and suitable system of incentives/disincentives to

encourage compliance and penalize defaulters • Suitable grievance redressal and appeal system to ensure speedy disposal of cases and

ensuring that appeal is not used as a forum for tax evasion (appeal to Courts should be allowed only after payment of assessed taxes)

Rate and Base Structure: • Basic Tax Rate: In many municipalities to compensate for the unrealistically low and static

assessed annual value, the rate of tax has been increased from year to year, reaching very high levels – even an absurd 120%. Any high rate of tax results in resistance on the part of the citizen,

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and increased tendency for evasion. Generally one month’s rent, as property tax would be reasonable. The Act should provide for lower and higher limits for the rate of tax – say 5% to 20%. Within the prescribed limits the ULB should adjust the rate such that the yield is sufficient to cover the cost of providing the basic urban services.

• Flat rate vs progressive sliding scale: The rate could be a flat rate. Alternatively, one could

provide for a progressive sliding scale – with properties having higher annual value bearing a higher rate of tax. [In some States the Act provides for a regressive slab system with higher value properties being charged lower rates. This is not equitable.]

• Residential/Institutional/Commercial: One could also distinguish between the use category of

the property and properties that are put to non-residential use, or those rented out can be subjected to higher rate of tax. Alternatively the Act could provide for levy of a surcharge on such properties.

• Exemptions: In many States the Act provides for several categories of exemptions, which often

gives a loophole in the tax structure for avoiding tax. The list of exemptions should be reviewed, and kept to the minimum. And sufficient safeguards should be built in to ensure that the provisions are not misused. Some of these are mentioned below: - Places of Worship: Only that portion used for religious worship should be excluded. Portions

put to residential, office and commercial use should be taxed. - Agricultural Land: Farm houses should not be exempt. Lawns and gardens in the guise of

agriculture should not be exempted. Only lands were actually an agricultural crop is cultivated should be exempt.

- Charitable Institutions: Only those institutions should be exempted which are tax exempt

and are providing free service or at a nominal charge. (In many cases schools, colleges, other educational institutions, nursing homes and hospitals etc claim exemption on the ground of their being a registered society.)

- Even when these properties are exempt from tax, a service user charge could be levied to

cover for the cost of certain basic services being provided – eg street cleaning, solid waste management, parking etc.

Valuation and Assessment: As has been spelt out in Section II, the present system of assessment is not transparent and not capable of self-assessment. It rewards the unscrupulous and penalizes the honest tax payer. It is in this context that the Government of India had recommended adoption of a system which is formula based and capable of self assessment.Different cities have tried out alternative approaches to introduce a self assessment system. These may be a capital value based system, a rental value based system or a unit area system based on multiple factors. Each State/ULB should decide which system is most suitable for it, given its local circumstances. Whatever be the basis the system of assessment should a) be objective based on clearly enunciated parameters b) be formula based so that it is capable of self assessment c) eliminate or at least minimize discretion at the field level and d) be citizen-friendly. The unit area system is enunciated in more detail below. • The unit area system: The unit area system is a simple arithmetical system of calculation of

property tax based on covered area of the building and the unit area value or unit area tax for the

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category (of locality or amenity etc.) in which the premises is located through which it is possible for any citizen to self-assess his property tax and file his return form. (This could also be applied to vacant land)

• Grouping of localities: In the unit area value system the entire city has to be grouped into

somewhat homogenous categories for specifying a unit area value. Such groupings could be done taking into consideration factors like average rental value, average capital value of land, quality of physical infrastructure, availability of social and market infrastructure, type of development, economic classes of occupants etc. In Patna, the city is classified into three grades based on street size. In Ahmedabad the city is classified into 4 broad categories mainly on land value basis. In Delhi 2000 and odd colonies/localities have been classified into 7 categories taking into account ten different factors. In Hyderabad the average rental value for each locality, for each type of use has been prescribed. Karnataka is planning to use a capital value based system.

• Municipal Valuation Committee: Whatever be the factors that are chosen for the classification,

these must be clearly specified in the statute. Further the process adopted should be objective, transparent and provide for a reasonable opportunity for the tax payers to file objections and be heard. To ensure this it is desirable for the Government to appoint a Municipal Valuation Committee consisting of experts and persons experienced in urban administration, taxation, and representatives from the local body. The manner of constitution of this Committee, their functions, and the processes that will be adopted to ensure fair consultation with the citizens should be clearly laid down in the statute.

• Other factors for grouping of properties: Different multiplicative factors can be prescribed to

adjust the location group wise unit area value to individual premises level. These factors should also be clearly defined in the statutory frame work eliminating any scope for subjectivity. The factors that could be considered are: Structure: Pucca, Semi-pucca, Katcha Use: Residential, Educational, Medical, Public purpose, Industrial, Office, Commercial, Recreational, Hotels Age: On the basis of the year of construction Occupancy: Rented or self-occupied Street: On the basis of the category or width of the street on which the property is located

• Unit Tax or Unit Annual Value: In a unit area system, one could either fix the tax per unit area for each group, as in the case of Ahmedabad and Patna. In this case: Tax = Unit rate of Tax x Area. Alternatively one can prescribe the annual value per unit area as in case of the Municipal Corporation of Delhi. In this case: Tax = URV x Rate of Tax x Area. The former has the advantage of being simple to understand and easy to apply. In the latter there is greater flexibility for raising and lowering the tax burden by simply adjusting the tax rate without altering the annual value. Another advantage is the scope for bringing in equity considerations into the tax structure by having a graduated rate of tax or different rates of tax for different types of properties. Owners with more built-up area or higher annual value can be taxed at a higher rate, or some lower cut-off covered area or annual value can be prescribed for

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levy of tax to give relief to poorer people. The annual value could also become the base for levying other taxes or user charges.

• Self Assessment: In this system individual owners or any other person liable to pay property tax can easily determine their tax liability by calculating the tax as follows:

Step 1 Note base unit area value (per sqft or sq mtr) for the respective category of locality in which the property is. Step 2 Annual Value (AV) = Base unit area value (UAV) X Multiplicative factors (f1, f2, f3 etc.)

X Covered Area (A) Step 3 In case the multiplicative factors for the different portions of the property are different then:

Total AV = (AV of portion 1) + (AV of portion2) + (AV of portion 3) + …. Step 4 Tax = (A V x Rate of Tax) minus (rebate / concession applicable)

• Advantages of Unit Area System: The above system is objective, transparent, comprehensive

and yet simple and equitable. It is capable of self-assessment. The parameters entering the assessment being clear and measurable there is minimum scope for discretion, and hence chances of litigation are reduced.

Tax Administration Substantial improvements in the revenue from tax can be achieved by improving existing administrative and tax information systems in the Municipality, some of which may not even require large investments.

• Discovery and Determination of Property Ownership: One of the greatest deficiencies in most

municipalities is the lack of an adequate data base giving details of properties. The Indian experience shows that where efforts have been taken to improve the property tax base there has been marked growth in tax revenues – in some cases tax revenues have doubled. Two basic approaches can be used for this (a) self declaration - where the tax payer is required to provide information (b) survey and inventory - where the taxing authority obtains information by field surveys. The information should include name and address of the owner, plot area, built up area floor wise, use to which property is put, the year of construction, the type of structure and details of assessment (if already assessed.) It maybe necessary to outsource this activity and engage a professional agency. This field survey should be on a 100 % basis and in subsequent years updated regularly through periodical surveys and inspections. To some extent, the system of self-declaration can be improved by penalties to induce compliance. To make the system more efficient it is necessary to supplement the self-declaration system by a system of field audits.

• Property Identification Code: While building up the database mentioned above, it would be

useful to introduce a unique number, which would identify the property. This may be called the Property Identification Code (PIC). This code could locate the property uniquely in terms of ward, the colony and the block and perhaps floor or flat. The code so developed should be used by all the departments and other government agencies and form part of the statutory regulatory or revenue records. This would help in of exchange information by various authorities, both Central and State, and would help in preventing leakage of revenue. Necessary provisions should be made in the Act for this purpose.

• GIS, Tax Mapping and Computerisation: In the larger municipalities the data base so created

should be linked to a GIS system and digitized urban maps. The initial mapping exercise should be

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outsourced and carried out by a professional firm having adequate experience in this field. But in the long term it is recommended that the Municipality sets up a fully equipped urban mapping division utilizing modern GIS technologies and to be manned by trained staff. This would serve not only the Revenue Department but also other departments of Municipality. This entire data should be computerized so that linkages can be established with other data in the Corporation such as building sanctions, trade licenses as well as with the self-assessment and revenue collection data.

• Onus for Assessment: Under a self-assessment system the onus for filing property returns on a

regular basis and paying the tax on/within a prescribed time schedule on the basis of the self-assessment should be on the owner. Failure to file the self-assessment should attract a penalty. Every owner shall be required to give information in regard to the change of status of his property by way of completion of structure/addition to the building, change of occupancy or use status or any other such event which shall have an effect of changing the property tax liability.

• Suppression of Information or Filing of Wrong Information: Where an owner does not give

information in regard to his properties as required under the law or where he has furnished wrong information in his self-assessment, he should be liable for a penalty, a penalty, say 30%, on the amount of tax suppressed. The Commissioner should have powers of suo motto assessment or revision in cases where a return has not been filed or the return filed by the owner is found to be defective. In all such cases the assessment would be finalized after giving an opportunity to the owner for being heard.

• Payment of Tax: It should be the responsibility of the owner to compute the tax due and pay the

same according to the schedule of payment notified. A system of payment in quarterly installments could be considered. As an incentive for early payment an owner paying the annual tax within the first quarter could be given a rebate, say upto 15% on the tax paid. To facilitate payment, arrangements should be made for accepting tax through designated banks, collection by the Resident Associations/Group Housing Societies, and online through Municipality website. Any amount due as tax and not paid within the time frame prescribed should attract an interest of I % per month for the period of non-payment of tax.

• Indexation: It is suggested that the valuation and change of classification should be done every

three year to five years. It would also be advisable to provide in the statute for indexation of the assessment on an annual basis tied to changes in the Consumer Price Index of urban non-manual workers or such other suitable index. This will provide the requisite buoyancy in revenue on a regular basis.

• Agency for Administration of Tax: It is considered that to improve the efficiency of tax the

Municipality could utilize the services of citizens welfare associations, banks or other agency including any private sector agency to: • maintain and administer the property, assessment and collection data base. • collect the tax and deposit the same with the Corporation • carry out any other tasks for better administration of property tax as may be passed by a

Resolution of the Standing Committee. • Monitoring and enforcement: While most of the Acts have adequate provision for enforcement

and collection of tax, the system in actual practice of monitoring tax returns and payment is woefully inadequate. Suitable strengthening of the enforcement processes and revenue intelligence mechanisms would yield higher realization of tax dues. A suitable system of incentives/disincentives to reward honest and prompt tax payers and penalize defaulters should be

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put in place. Any appeal to a higher Court of Law should be permitted only after the tax as assessed has been paid by the assessee, so that appeal is not used as mechanism for tax evasion or delay.

Citizen Interface Mechanisms Greater acceptance of reforms and better compliance can be accomplished by paying attention to the interface between the local administration and the citizen. Some area areas are suggested below:

• Stakeholder Consultations: At every stage of consideration of the reforms and in the

development and design of the new system, wide ranging consultations with all stakeholder groups is necessary to ensure that the reformed system meets the requirements of all groups, and is acceptable to them. The groups should include resident associations, market associations, groups of special users (eg schools, hospitals), political leaders, media and officials implementing the system.

• Consensus Building: Once a system is designed getting necessary approvals at the Municipal and

Government level would require a well thought out strategy for consensus building. Often resistance to change comes from officials, councillors and commercial property owners who have vested interests in status quo. Formal presentations and informal consultations with opinion leaders and addressing their concerns is vital for successful implementation. In this media can play an important role if they are coopted into the awareness building process from the beginning.

• Citizen Education and Awareness: During the period of design of the system citizens should be

made aware of the reasons for the reforms, what is being planned and the advantages of the new system. Our experience shows that citizens are not averse to paying higher taxes provided they feel that the new system is equitable and fair, is easy to understand and to comply with. And they have the confidence that the increased revenues will be invested to provide better services.

Once the new system is brought into force a series of brochures, pamphlets, newspaper articles simply worded should be brought and widely distributed to educate the citizens on their responsibilities and explain clearly the modalities of operation of the new system.

• Transparency and Easy Access to Information: The details of the returns as furnished by the

owners and suo moto or revised assessments should be made accessible to any citizen, who wishes to see such information. It would be useful if this information is also accessible through the website of the Municipality or copies made available at cost on request. Such details could also be made available to each Resident Association with reference to their residential locality. Any person who has reason to believe that the return filed by the owner does not portray the actual facts could then bring this to the notice of the Commissioner. [This would be one useful channel of intelligence information on evasion] The property owner should also be in a position to get information on the status of demand and payment in respect of his property, preferably on line. Return forms, challans for payment, ready reckoner regarding rates, explanatory brochures should be available on the website and also at the ward offices.

• Grievance Redressal and Appeal: At present in many municipalities considerable number of

appeals are pending in Court and it takes a long time for settlement. With a formula based self assessment system as proposed it is expected that such grievances will be substantially reduced. To get over teething problems in the first year of implementation of reforms it may be advisable to appoint an Anomalies and Hardship Committee to hear grievances, objections and make recommendations for improvements/modifications in the system.

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Further the Act could provide for the designation by Government of an officer to be the Grievance Redressal officer who could be approached by any citizen aggrieved by an assessment order of the Commissioner. With a view to ease and expedite the appeal process it is recommended that a Municipal Taxation Tribunal be constituted to hear appeals against levy or assessment of any tax under the amended system.

• Citizen Friendly Systems: The property tax system as well as any associated forms, educational

material, manuals, the payment and information systems, should be designed so that these are easily understood even by a lay person, is citizen friendly and can be easily used by the common citizen. This definitely helps in greater acceptability and better compliance.

4. Steps to implementing the reform

We give below briefly the steps that need to be taken in designing and implementing the reforms:

• Setting up Expert group/Committee: The first step is to appoint an expert Group or Committee

which can study the existing system, analyse problems, look at other best practices and design a system suitable to the State/Municipality. The Chairperson of the Committee should preferably be a senior person who has had considerable years of experience in Urban Policy, Finance or Taxation. The other members should possess sufficient experience in any of the areas of Finance, Taxation, Urban Planning/Administration or Municipal Management. One of the members should have sufficient legal background and is familiar with taxation law and connected case law.

• Data Collection and Mapping: Lack of property data and digitized maps makes the work of any Reform Committee very difficult. So one of the first tasks should be to engage a professional firm to gather data on the properties in the city. Some data would be available in the local body, and in associated depts. But detailed property data will have to be collected by a house to house field survey. Some sample surveys would be needed to support the analysis by the Expert Group. In bigger municipalities a professional firm should also be appointed to prepare a digitized city map using GIS, and link the same to the property data. On a parallel basis a computerized property tax system should be put in place and the survey data and GIS maps would provide the base data.

• Consultative Process and Consensus Building: The process of consultation should start right

from early months. This should involve the Standing Committee, Corporators, MLAs and other political VIPs, Taxation dept officials, RWAs, Market Associations, Special interest groups, Media, and the general public (through a public notice) and public hearings.

• Grouping and Classification: We have dealt with this earlier. This will require setting up of MVC, consulting, experts, taxation assessment staff, engineering and planning staff, and finally issuing a public notice and hearing public objections and disposing of the same. This process is important to ensure that the system passes judicial scrutiny.

• Designing of the System: While designing the system keep in mind the need for making it objective (to minimize the scope for corruption and harassment) and to make it simple to understand and citizen-friendly.

• Computer Simulation and fixing base rates: Once the property data base is ready one can use this to conduct simulation for analyzing revenue outcomes and tax incidence on different groups, for input into the decision making of fixing the base rates and multiplying factors.

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• Public Notice, hearings and amendments: The final scheme, including the grouping of localities, base rates and other parameters should be made public and objections called for and considered and the scheme finalized.

• Municipality and Cabinet approval: The scheme as finalized would then need to be cleared by the Municipality and the State Cabinet for adoption.

• Amendment legislation and Rules: In the event of amendments being required in the relevant sections of the Municipal Act, the amendment process will have to be gone through. This will require the following steps: i Government constitutes a Legislation Drafting Committee. This should be chaired by the

person chairing the Expert Group Committee. It should have some of the members from the Expert Committee and a suitable senior officer from the legislative drafting division of the Department of Law of the State Government, the legal officers of some of the big Municipal Corporations and Municipalities, one or two legal counselors/advocates having knowledge of taxation laws.

ii Hold a Preparatory Workshop. Representatives at the highest policy making level from the

political and the bureaucratic side of the concerned Departments of the State and mayors, select councillors from the major urban local bodies should be invitees to this workshop. This workshop will deliberate on:

. policy objectives for introduction of the reforms

. reform initiatives in other states – the pros and cons in the context of the State

. case law related to taxation of lands and buildings

. shortcomings and deficiencies in the existing property tax legislation and system

. preliminary recommendations of the Expert Committee on the design parameters of the new system

iii Finalise Policy Agenda: The Drafting Committee will meet to discuss and finalise the policy

agenda which will cover the following: . the design parameters of the proposed area based system . rational basis for and factors for classification of premises to be assessed . the procedure to determine unit area values of lands and buildings . institutional mechanism for transparency, objectivity and regularity in the above

valuation process . procedures and organizational set up for citizen interface, grievance redressal and

appeal . limits and reasonableness of the tax levied . government-urban local body interface and protection against excessive delegation . systems for Tax mapping including Unique Premises Numbering System.

iv Finalise Paper on Legislative Intentions: The Drafting Committee will meet to discuss and

finalise a detailed paper which will set out the policy objectives and legislative intentions of the amendment. This will clearly set out the purpose of each amendment and seek decisions

v Approval of Policy Agenda and Legislative Intentions: The Municipal Affairs Department

will seek the formal approval of the Policy Agenda and broad changes in the law proposed at the political levels of the Government and the major urban local bodies concerned.

vi Preparation of First Draft: In close association with the drafting division of the Government

the Committee will deliberate on and prepare the first draft of the amending legislation for

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amendment of the Chapters relating to Taxation and Rates; Payment and Recovery of Taxes; Appeal. This will be sent to the Law Department for vetting.

vii Preparation and Submission of Final Draft: Having regard to the comments of the Law and

concerned Departments of the State Government the final draft of the legislation will be prepared with notes on clauses, and a draft covering policy note. This will be sent to the Department of Municipal Affairs for formal approval by the Legislative Assembly. The Committee could play a supportive role in ensuring smooth passage of the bill.

viii Draft and notify Rules and Regulations: The Drafting Committee may appoint a small

group to finalise the rules and regulations. These could be got approved by Government and notified once the Act has obtained assent of the Governor and been notified.

ix Undertake Pilot Project for Demonstration: After notification of the Amendment Act, and

framing of necessary Rules and Regulations, the Municipality may if they so choose undertake a Pilot Project for Demonstration of the Operation of the System in any Ward or group of Wards. This may help in ironing out any teething problems or field level problems in implementation and help in easier public acceptability for city wide implementation.

5. Measuring Achievement / Outcomes

To judge the efficacy of reforms and monitor progress the following parameters could be considered:

• Coverage: Number of properties in the assessment register, number of new assessments during the year, Number of properties assessed as % to the number of properties in the city. The target should be reach 100% coverage over a five year period.

• Tax Mapping: Properties covered by the GIS mapping and field survey, targeted, achieved --

during the year and cumulative in the reform period. Number of properties and covered area, ward wise and use category wise.

• Demand: Current Demand, Arrear Demand, % increase in Current Demand year wise.

• Collection: Current and Arrear Collection separately, and % to demand year wise. The target should be to reach a minimum of 85 % collection efficiency.

• Tax Revenue: Revenue from tax as a percentage of total revenues of the Municipality, and trend over the years.

• Enforcement: Number of cases of evasion/suppression detected, amount of suppressed revenue/penalty recovered, number of cases pending in court, additions in the year, disposed off, revenue locked up in pending cases, revenue collected from case disposed off.

• Grievances: Number of grievances received from the public, number disposed off/pending, average response time for settlement of the grievance.