Property tax is one of the significant revenue source for an urban
local body (ULB). With ULBs taking on increased functions and revenues
perennially under pressure, it has become imperative to optimise revenue
Under the Jawaharlal Nehru National Urban Renewal Mission
(JNNURM), all municipal corporations are mandated to switch to a capital
value-based property tax regime by December 2012, as one of the
conditions for financial assistance through the scheme.
CAPITAL GAINS FOR ULBs
In Mumbai, the Standing Committee of the Brihanmumbai Municipal
Corporation (BMC) recently approved the new property tax regime. The
proposal is yet to be approved by the general body. However, it has
already created an uproar and a PIL has also been filed against it.
At this point, the issue may be Mumbai-centric but eventually it
would be a guiding example for all the urban civic bodies. In a long
run, it would also concern every housing society and office complex in
There are around 14,22,812 residential and about 3,77,000
commercial properties in greater Mumbai. The average annual earnings
from property tax is around R2,800 crore, the second highest source of
revenue for BMC.
LB should collect at least 85 per cent of the property
tax. (Most ULBs are inefficient on this count, which is why 85 per cent
is seen as an acceptable target.) BMC’s record, however, is a dismal 55
Hitherto, property tax was calculated on ratable value i.e.
according to the rent a unit can command on the first year of its
existence. Most of the properties in island city are old and are
protected by the Rent Control Act. Since the matter regarding rent is
pending with the Supreme Court, rents are frozen at the level of 1940s.
The ratable value and the property tax did not increase for decades
On the other hand, buildings — mainly in suburbs — built in the last
few decades were not under the rent Act and had higher rental value so
BMC could tax them higher. This created a disparity.
Under the new capital value system, the tax will now be
calculated based on the market value as per the ready reckoner rates for
all the properties across the city. The capital value usually considers
criteria such as age, type, category, location etc for the property.
So, higher the market value, higher the property tax. This system will
be applicable to all old and new structures in the island city as well
as the suburbs. The new regime will allow the tax to vary with the
fluctuations in the market value of the property.
However, there are some interesting provisions. One, the
properties admeasuring less than 500 sq. ft carpet area will not be
levied tax under the new regime till 2015. Secondly, the property tax
under the new system will be charged retrospectively from April 1, 2010.
The new rates will be constant and in force until 2015 when the
revision will be due. The revision is capped at 40 per cent of the
prevailing rate slab. The present hike in the tax rate will not be more
than the 100 per cent of the current rate while those who will enjoy the
reduction will get the refund of the additional tax paid during last
two years (from 2010 onwards) with interest.
The civic administration claims that about 54 per cent of the
total 12.22 lakh properties will not face any increase in the tax as
they are smaller than 500 sq. ft carpet area. Around 27 per cent of this
number would enjoy reduction in tax ranging from 30-60 per cent while
only 19 per cent will have to shell out more in the range of 20-100 per
cent. However, the increased tax can be paid in three installments up to
March 31, 2013.
According to Additional Municipal Commissioner Rajiv Jalota,
“Since rents were frozen, we had to keep increasing the tax rates owing
to which new buildings had to pay exorbitant property tax. Now the rates
for the new buildings will reduce to as much as half in many cases
across the city. However, the increase in taxes for old buildings in
island city will be marginal. The system will rationalise the taxes
levied in the city.”
However, many suburbs will benefit while several areas in island
city will feel the brunt. The commercial spaces across the city are
worst hit as they might have to pay three times the current tax.
“The new system will usher more transparency and better
compliance. The number of disputes will reduce greatly since one can
compute his own tax.” (See box for an illustration)
BMC has indicated a uniform tax rate of 34.8 per cent for all
residential properties irrespective of the location. However, the other
factors will create the variations. BMC claims to have made the process
transparent as it will make capital value of the properties available on
its website. The civic body expects to get additional revenue of
R300-400 crore under the new regime.
Several objections have been raised on this move:
Hike should be only after regular revisions happening periodically, and not suddenly.
The tax should be on carpet area and not built-up area.
New buildings will be just pencil box structures to avoid high tax on decorative features.
The retrospective implementation would be burdensome.
Including super built up area in chargeable area is not justified.
According to Rajkumar Sharma, coordinator of AGNI, an NGO, the
new system aims at protecting the interest of the developers as it tries
to include super built up areas as well in the tax calculation.
A public interest litigation (PIL) has been filed against BMC in the Bombay High court, which states that:
It is the duty of the BMC to implement the mandatory reforms such
as mapping properties using a Geographical Information System (GIS) to
have a full record of properties and bring them under the tax net. The
income can increase without changing the present tax structure. However,
BMC has yet to complete mapping of properties.
Exempting properties below 500 sq. ft would mean that owners of
larger property owners would subsidise smaller and unauthorised property
owners. Around 2.75 lakh properties would be singled out for a hike to
the tune of 100 per cent.
Next month, the proposal would be tabled before the general body
of BMC for approval and the PIL would come up for the hearing. However,
if sources are to be believed, considering the objections the ruling
party in BMC might rollback the proposal. Nevertheless, the issue has
thrown significant light on an important policy concerning urban
governance and real estate.