The current property tax system is obsolete and should soon be rationalised by a much awaited amendment, finds Deepika Mital
Property tax and the way it is to be levied in Mumbai is in the news again. The system is to be shifted to the capital valuation method from the old basis of rateable value or the rental value of the property, as has sensibly happened in all other cities across India. An amendment was passed in the Legislative Assembly last week and is due to be tabled in the Legislative Council, confirmed Municipal Commissioner Jairaj Phatak.
This essentially means that properties like those in South Mumbai which have much higher capital values will now end up paying higher property taxes and those in the suburbs which are paying much more would eventually reduce.
Sunit Gupta, real estate valuer and author of stamp duty ready reckoner says, "Currently, residents of a 40 year old building in South Mumbai are paying 15 to 30 paise per square foot, and a resident in Dahisar is paying anywhere between 2.50 to 3 rupees per square foot, for a new construction. Considering this difference is much more than ten times over, and the BMC doesn't provide any extra services to the Dahisar area - why should this difference exist? Even if the criteria were only the newness of the construction, the difference should not be so vast.
In any case when looking at the worth of the property, a flat worth six crore is levied in the region of 40 paise a month and a flat worth 15 lakh is levied 650 rupees a month or thereabouts!"
Gupta continues, "This is a drastic move, but the effects will be very far from drastic as ensured by the cap on the change, namely that the charges cannot go up more than double in the next five years, also the rates cannot go down below threeforth of the current value, as per an earlier directive. So basically, new buildings in the suburbs will end up paying less only over an extended period of 10 to 15 years and the old buildings will not be affected either way. Town side the new buildings which are currently paying 6 rupees per square foot will pay less and the old ones currently paying 30 paise will pay more."
The main pros for such a system is the greater transparency and across the board taxation which will come as a relief for all tax payers. Advocate Rajan Hiranandani hails it as a step in the right direction, with the one important implication being that landlords who are currently paying more for a property that has been rented out should now have to pay the same tax as that for a self occupied home. They are in any case paying income tax, so why should there be a kind of double taxation system, it is not as if the BMC is doing anything very different in terms of roads or public infrastructure!
In terms of actual implementation especially in a sea of old buildings like those prior to 1940, experts feel that since the BMC has been talking about this legislation for the past six years, they are reasonably well equipped for implementing it. BMC has surveyed and measured individual buildings and in other cases have the approximate area. Taking into account three factors, which are - the age of the building, the use of the building and the area, calculations will be made. There will be teething problems, but that is to be expected. The number of litigations will probably go up as people represent their cases.
Another problem is that since this is based on the government issue stamp duty reckoner which does not always reflect current prices, the capital values will be unrealistically high! On this Mayur Shah, managing director, Marathon Group says, "It is not important that exact values are reflected, but that the benchmarking is across the board. All property tax rates will at least be comparable. This change will ensure a much higher rate of compliance as the system is more fair to all, as the newer constructions are not being burdened by the old ones. Any unfair levies or practices always ensure that compliance rates go down."
He continues, "Also with such a slow, steady and telescopic change, the rationalising will not be too onerous. The discretionary powers resting with the tax collection agency are also very much reduced as it is such a simple self calculatable model. Thus it should end in lesser corruption and the BMC will earn greater revenue - so infrastructure spending can also go up, which in itself is a great end result. We at MCHI have been pushing for this change for a long time, but any change takes it's own time. It would be a misnomer to say that this is an election issue as everybody should welcome greater transparency and higher compliance."
When this actually becomes a fact is still open, but there is no doubt that this legislation though affecting some groups adversely, will be achieving the greater good. That should be motivation enough.
We could soon be moving to a change in the property tax system
If all goes according to plan, property with higher capital values would attract more tax