Property taxation needs structural reform, Pg7

Key Highlights:

• India's municipal bodies exhibit poor property tax performance, with cumulative property tax at 0.15-0.2% of GDP, significantly lower than middle and low-income countries.
• Property tax is the most crucial own revenue source for municipalities and vital for urban investment and creditworthiness.
• Past policy efforts, including recommendations from Finance Commissions and schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Atal Mission for Rejuvenation and Urban Transformation (AMRUT), have focused on technology and process-based reforms.
• Recent studies indicate that these reforms yield sub-optimal results without accompanying structural changes.
• Key structural issues identified include deficits in municipal human resources, irregularity in municipal elections, and poor financial reporting practices.

Detailed Insights:

• The three stages of property tax are enumeration (identification and record maintenance), valuation, and billing/collection.
• GIS-based mapping and drones are used for enumeration, but require physical inspections and regular repetition, which are hampered by staff shortages and skill gaps.
• Outsourcing human resources for enumeration is less effective than municipal assessors who possess institutional memory.
• Property valuation often uses a 'base rate' set by municipalities, which is infrequently revised, unlike the stamp duty-linked 'circle rate' used in Capital Valuation.
• Infrequent revisions of the municipal 'base rate' are linked to delayed municipal elections, impacting tax buoyancy.
• Collection efficiency is poor, and credible estimates are difficult to obtain due to inadequate financial accounting.
• Structural reforms are essential, including increasing human resources, ensuring timely municipal elections, and making financial data publicly available.
• The 74th Constitutional Amendment Act provides for the constitution of State Finance Commissions to review municipal finances and recommend measures for improvement.

Key Concepts Involved:

• Property Tax: A direct tax levied on real estate by local governments, serving as a primary source of municipal revenue.
• Municipal Creditworthiness: The ability of urban local bodies to borrow funds, often dependent on their financial health and revenue generation capacity.
• Jawaharlal Nehru National Urban Renewal Mission (JNNURM): A large-scale urban development program launched in 2005 to encourage reforms and fast-track planned development in Indian cities.
• Atal Mission for Rejuvenation and Urban Transformation (AMRUT): Launched in 2015, it aims to provide basic services like water supply, sewerage, and urban transport infrastructure to improve the quality of life in urban areas.
• Finance Commissions: Constitutional bodies (Union under Article 280, State under Article 243-I and 243-Y) that recommend the distribution of financial resources between the Union and states, and between states and local bodies.
• GIS-based mapping: Geographic Information System technology used for surveying, geo-tagging, and reconciling property records to identify unassessed or under-assessed properties.
• Capital Valuation: A property valuation method where tax is based on the market value of the property, often linked to state government-set 'circle rates'.
• Unit Area Method: A property valuation method where tax is calculated based on a fixed rate per unit area (e.g., per square foot) of the property, often varying by zone.
• Circle Rates: Minimum prices for property registration set by state governments, used to calculate stamp duty and registration fees.