Property tax in municipal bodies below potential: Crisil

Written by Banking Bureau | Mumbai, Aug 28 | Updated: Aug 29 2008, 05:59am hrs
While evaluating the credit ratings, Crisil observed that, property tax and user charges revenues in the urban local municipal bodies (ULBs) were found to be below potential, contributing on an average 19% and 3.5% respectively to the total revenue inflows. Property tax collections averaged only 0.7% of the income of populations covered, indicating significant potential for enhancement.

On the other hand, the untapped user charges potential reflects insufficient metering of water connections, and low collection efficiency due to inadequate systems and organisational capacity. Because property tax and user charges revenues are below potential, most ULBs are dependent either on octroi or government grants. Moreover, establishment expenditure across ULBs was high, averaging 56% of total revenue expenditure, and going as high as 80% in one case.

Raman Uberoi, senior director, Crisil Ratings, said, "The credit risk analysis of these ULBs has thrown up some interesting findings. For example, most ratings in the investment grade are significantly higher than the credit risk profiles of the respective state governments. This means the ratings of ULBs are not constrained by state government ratings, unless there is a heavy dependence on discretionary, ad-hoc government grants." Crisil has assigned credit ratings to 16 urban local municipal bodies (ULBs) of the country.

These ratings are expected to enable ULBs to access the debt market, and will thus play a central role in the development of a municipal bond market in India that is currently pegged at Rs 1,200 crore,

Meanwhile Devendra Pant, associate director, Fitch Ratings has said, "Loan repayments of municipal bodies are not backed by sovereign assurance, unless they are explicitly specified and secured though a legal agreement to that effect."