Focus on property taxes: MCDs must work on generating revenues on their own

By: |
January 05, 2021 6:45 AM

With the devolution of funds politicised the way it has been, the ULBs need to focus on increasing their own receipts

Virmani said that an increase in marginal income tax rates need to be reversed.    Delhi municipal corporations had approached the Centre with requests to be treated on a par with state ULBs, but no grant has been forthcoming. Representative Image

The finances of the Delhi municipal corporations have been in shambles for quite some time, with rather devastating consequences—that doctors and hospital workers in hospitals run by North Delhi Municipal Corporation were forced to go on strike over non-payment of salaries in the middle of the pandemic shows how bad things have gotten.

While the municipal corporations claim that the Delhi government has not paid them Rs 13,000 crore of dues—arising from the latter not implementing the recommendations of the Fourth Finance Commission of Delhi—the government of the national capital territory blames the Centre for this, saying it has refused to accept a part of the recommendations. It maintains that Rs 12,000 crore over 10 years are due from the Centre. Against this backdrop, the Delhi municipal corporations had approached the Centre with requests to be treated on a par with state ULBs, but no grant has been forthcoming, The Indian Express reports.

Litigation to resolve the dispute has not helped—the Delhi High Court, in 2016, 2018, and 2020 had ordered the ULBs and/or the Delhi government to ensure payment of salaries and transfer of requisite funds, but the fact that the ULBs remain cash-strapped shows not much has fructified. With the devolution of funds politicised the way it has been, the ULBs need to focus on increasing their own receipts.

A 2019 study by ICRIER titled The State of Municipal Finances in India found that property taxes constituted the bulk of Delhi’s tax revenue earnings (at 88.8%), compared to much lower shares for Beijing, Buenos Aires, Barcelona, which have a more diverse tax revenue portfolio. Against such a backdrop, property tax collections (including arrears) consistently falling short of targets for the Delhi ULBs is rather telling in terms of their capacity to enforce the most important tax. Indeed, while collections for the North Delhi ULB fell short of the target by 40% for FY21, they undershot the budget target by as much as ~60% in FY15.

It is more or less the same story for the East and South Delhi corporations as well. While the North Delhi corporation hasn’t raised tax rates or introduced new taxes in its FY22 budgets—the pandemic impact of the economy being a major consideration—the South corporation will be raising the property tax rate while the East corporation has instituted two new taxes and one cess.

Rebates on lumpsum payments, doorstep collection—as offered by the Delhi corporations—are good ways to encourage compliance, but the fact is that ULBs, and not just Delhi’s, need to radically rethink property tax collections. The gap in India is rather large—in 2017-18, property tax revenue as a share of the GDP was 0.15% of the GDP, vis-a-vis 0.6% in comparable economies in the 2000s itself! Indeed, the Economic Survey 2017-18 had spoken of the under-realisation of property taxes and the need for deploying technology such as satellite imagery to map urban properties better, which, in turn, will ensure better enforcement.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Gold and social stock exchanges bound to click
2Distressed assets: Winds of change
3Inequality needs urgent attention