Delhi Property Tax Abolition
According to Roshan Bhatnagar, a municipal finance specialist with two decades of working experience with municipal bodies in Delhi, Bihar, Tamil Nadu, UP, Karnataka and municipalities of nine developing and developed countries,free property tax is a form of populism best avoided.
Recent poll promise by AAP in upcoming municipal elections in Delhi to waive off property tax for all residential properties has created a stir amongst all concerned in development of Delhi & its well-being. Apparently, this waiver is yet another move to allure voters in Delhi following free monthly 20,000 liters’ water and electricity subsidy earlier at time of state elections to all residents, irrespective of their economic status.
This latest populist measure by AAP,presently in control of municipalities in Delhi,is targeted to benefit all residential properties and not restricted only to poor and disadvantaged sections of society, usually resident in F, G& H category of properties. The only justification provided by AAP and its leader, Arvind Kejriwal for this populist measure is that loss of revenue shall be made good through combating corruption in assessment & collection of property tax by the politicians presently holding control of municipalities in Delhi.
About 4000 Municipalities in India including in Delhi are significantly dependent upon property tax as its “own Source revenue”. Generally, property tax contributes 30 % to 70 % of self-generated revenue of municipal bodies in India.
Delhi Property Tax Mechanism
Property tax mechanism in Delhi has a relatively improved Unit Area System of assessment introduced effective April 2004 with differential rate structure for properties in eight categories from A to H based upon factors like settlement pattern, access to infrastructure& services, land prices etc. The present Unit Area System replaced previous system which was based on assessment done by municipal inspectors and prone to wide spread corruption. The new system also allows filing of property tax returns as well as payments online,targeted to reduce direct contact with any municipal staff.
Property Tax % of three Municipal Commissions (MC)to Delhi GDP is presently only measly 0.23% while in Canada, it is 4% and is average of 1.04% in another 65 countries. Further, as per 13th Union Finance Commission, (UFC), property tax yield should be between 0.52% – 0.79% of State GDP. As such, property tax collection of three MCs, which stands presently at Rs. 1,460 crores have a potential to increase between Rs. 3,236 crores and Rs. 4,917 crores.
Following information is compiled based on Budget and Annual Financial Statement for FY 17-18 and several recent publications in Time of India.
|PROPERTY TAX STATISTICS: Three DELHI MCs|
|NDMC||SDMC||EDMC||Total 3 MCs|
|Number of Wards||104||104||64||272|
|Properties under Jurisdiction (in Lakhs)||10||12||9||31|
|Properties paying PT (in Lakhs)||3.32||4.3||2.7||10.32|
|% Paying Property Tax||33.2||35.8||30||33.3|
|No. of Households (HHs in Lakhs)||10||11||4||25|
|No. of HHs PT Paying (in Lakhs)||3.35||4||2.28||9.63|
|% Households paying PT||33.5||36.4||57||38.5|
|Estimated Population (in Lakhs)||55||60.5||22||137.5|
|Total Est. Property Tax-16-17 (Rs. cr.)||475||845||140||1,460|
|Total Est. Property Tax -Residential assuming 75% of total (Rs. Cr.)||356||634||105||1,095|
|Avg. PT collection per Household (Rs.)||3,560||5,764||2,625||4,380|
|Avg. PT collection per Capita (Rs.)||647||1,048||477||796|
|Avg. PT collection per person per day towards municipal services (Rs.)||1.77||2.87||1.31||2.18|
|Gross State GDP FY 16-17 -AE (Rs. Cr)||622,384|
|Property Tax % of SGDP||0.23|
|Per Capita Income FY 16-17 -AE (Rs.)||303,073|
|Property Tax FY 16-17 % of Per Capita Income||0.26|
- Property tax payers are only 10.32 Lakhs (33.3%) out of estimated 31 Lakh properties under jurisdiction of three municipalities of Delhi. Based on the figures, it can be concluded that we are largely a non-tax compliant society.
- The advance estimate of per capita income of Delhi at current prices during 2016-17 estimated at Rs. 3,03,073is almost three times of the national average, both at current and constant prices. Yet property tax payment per capita is only Rs. 796, which is barely 0.26% of per capita income. This leaves much scope for local taxes to increase.
- Average annual property tax collection per resident of Delhi is Rs.796, barely Rs.2.18 per day against expected municipal services like solid waste management, street lighting, drainage, roads and park maintenance and misc. other mandated services under 12th Schedule of the 74th Constitutional amendment of 1992.
The main reason for unsatisfactory performance by ULBs is that even after passage of quarter of century since the landmark constitutional amendment in 1992, all States and UTs in India including Delhi have failed to empower municipalities with funds, functions, and functionaries.
The Ground Realities
The quality of life in Towns/ Cities is largely dependent upon efficient and effective working of municipalities mandated to provide civic services to its citizens. The 12th Schedule of the 74th Constitutional Amendment Act of India, 1992 defines 18 tasks in the functional domain of the Urban Local Bodies.
Presently, the shortage of professional staff is pervasive in almost all ULBs in India including in Delhi, leading to poor governance. Municipalities need to appoint immediately professional staff like Urban Planners, GIS Specialists, Public Health Specialists to manage SWM, CAs& CMAs with specialization in municipal finance, Engineers-Civil, Mechanical& Electrical, IT specialists, Human Resources Specialists, and trainers etc.
Delhi Government has failed to implement the recommendations of the 4th Delhi State Finance Commission, which was set up with eminent experts in urban governance. The Delhi SFC report was made available in 2013.It is interesting to note that despite available report by constitutionally empowered SFC, AAP decided to elect a committee in January 2017 to improve finances and bolster revenue of three MCs under chairmanship of its Chief Secretary, M.M. Kutty.
Delhi Government has not followed the directive from Central Government issued in 2009, which stipulated that an Action Taken Report (ATR)should be laid before legislature within six months of submission of Report by SFC.It may be noted that its recommendations, inter alia, included devolution of 12.5% of total NCT of Delhi’s collections of taxes, duties, fees etc. excluding Motor Vehicle Tax (Rs. 30,680 crores as per RE16-17) and due share to three MCs worked out to be Rs. 3,835 crores.
Delhi government has transferred only Rs. 1022.46 crores(RE 16-17). More importantly, if activities like “Primary education” and “running of hospitals” are transferred out of domain of municipalities and integrated with functions of Govt. of Delhi, municipalities could focus more effectively and efficiently on its mandated tasks under 12th Schedule.
Despite increase in inflation factor by 142% since 2004 and significant impact of 6th and 7th Pay commission awards on its establishment expenditure, property tax rates have been changed only marginally during last 13 years.
North and East Delhi MCs have huge arrears of salary and are not able to pay salaries regularly. Three MCs have already 55,226 safai karamcharis and AAP has also now announced that additional 30,000 to 40,000 contract hires by three MCs shall be made permanent. Besides, MCs are now expected to establish and implement Municipal Cadres system including hiring of urban professionals, as envisaged under AMRUT scheme of central government. All these factors shall need huge additional revenue resources.
Finances of two out of three ULBs are in disarray as MCD in North and East have a deficit of Rs. 2794 crores and 2041 crores respectively.No corrective follow- up action has been taken after trifurcation of three municipalities in the year 2012 and North and East Municipalities are specially starved of funds;
Since Octroi,Entertainment tax, Entry tax etc. shall be subsumed under proposed GST planned to be implemented from July 2017, it is imperative that base of property tax collection system is instead strengthened and not tempered with through waiving off property tax.
MCs in Delhi can raise resources through municipal bonds only if they have viable and sustainable means to service the borrowings through sustainable and consistently increasing funds from own sources every yearby at least 15%. In this context, property tax needs to be raised significantly and not abolished, which shall be fatal for municipal finances of three MCs.
Finally, the waiving off property tax from residential properties by AAP through necessary amendment to this effect in the Delhi Municipal Corporation Actis, anyway, not likely to be approved by MHA, GoI since it shall set up an undesirable precedent for financial health of about 4,000 ULBs in the country.