1. Property tax hikes in offing? This idea mooted for period when tolls on highways removed

Property tax hikes in offing? This idea mooted for period when tolls on highways removed

Once real estate is covered by GST, stamp duties and registration charges will be subsumed under it, so a different rate for properties abutting a major infrastructure project may not be possible.

By: | Published: October 19, 2017 4:44 AM
Hiking property taxes to take care of losses once tolls on highways are removed is a terrible idea.

Given how good infrastructure, or the presence of good schools and hospital in the neighbourhood, jacks up the prices of real estate, the plan to hike the registration fees for houses/offices along the Dwarka Expressway—to connect Delhi and Gurugram—as a news report in Business Standard suggests, would seem to be a good one. If better infrastructure helps increase land value, charging a higher registration fee is one way to help the government finance it. But given how, at some point, real estate will be covered by GST, it is not clear how long this can last. Once real estate is covered by GST, stamp duties and registration charges will be subsumed under it, so a different rate for properties abutting a major infrastructure project may not be possible. But even if way is found around this—by, say, not including special property cesses—the idea is a bad one.

For one, as BS reports, there will be a loss of revenue since the plan is to replace the toll on the road with the higher registration cess; the fact that Delhi-NCR has a huge inventory of unsold flats only makes this worse since registration can only be charged once a property is sold. Besides, the idea of the toll is to ensure there is enough money for the franchisee to have an incentive to maintain the road and ensure traffic movement is smooth—once the toll goes, so does the incentive. Indeed, given returns from toll roads are steady, in the nature of an annuity almost, they are a perfect investment avenue for insurance and pension funds and, to that extent, levying the cess will dry up a lucrative source of funding; indeed, were this to become policy, even NHAI which wants to monetise existing toll roads would find itself in a bind.

One of the reasons given for the plan is that the Delhi-Gurugram expressway was choked for hours and so, with no toll to be paid, traffic movement will be smoother. This is missing the wood for the trees. If Delhi-Gurugram was a mess, the Delhi-Noida tollway was not; the former was badly managed, the latter was not. Selling more toll cards, and perhaps even online, would help users move across toll barriers faster, the presence of RFID tags on vehicles would make things even more efficient. It would be unfortunate if the government was to take one bad experience to fashion its policy on toll roads.

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