State and local governments across India should digitise property tax systems to unlock their revenue-raising potential
By Shilpa Kumar & Viraj Tyagi
Under the Atmanirbhar Bharat Abhiyaan, states will be permitted to borrow more money than before. Of this, additional borrowing of nearly Rs 50,000 crore has been linked to an increase in urban local body (ULB) revenues. As property tax is the biggest source (approximately 60%) of self-generated revenue for ULBs, this automatically means a greater focus on property tax reforms. ICRIER reports that property tax collections as a share of India’s GDP stood at only 0.15% in 2017-18. This is less than one-sixth the OECD average of 1%—and suggests that there is an opportunity to ramp up property tax revenues in our cities significantly. For instance, if we could raise this figure to 0.5% of GDP, it would represent approximately Rs 60,000 crore in additional revenue. Successful reforms of the property tax system could thus help both individual cities as well as states with better access to resources.
Indian cities lag on property tax revenues for several reasons. There are systemic gaps in the enumeration of properties and maintenance of records; this excludes a significant number of properties from the tax base. Further, informal urban growth makes it difficult to estimate what percentage of properties are excluded. The valuation formula, which determines how much tax is charged on a property, is often indexed to outdated rental values—a poor reflection of the market value of the property today. Finally, low collection rates compound the challenge: on average, only 37% of billed tax is collected.
One explanation for this state of affairs is that municipalities across India are often reliant on pen-and-paper records and manual processes to administer property tax. Dues are calculated manually, based on entries in physical registers; bills are printed and then delivered by post or hand, and citizens pay their taxes in person at ULB offices or service counters, often carrying stacks of paper receipts from previous years—just in case a dispute arises. Even where some data is digitised, records tend to be split across different departments and offices. For instance, registration data is with the property department, but the revenue department records changes of ownership.
The good news is that we know how to improve this situation: We need a concerted effort to digitise both property records and property tax collection mechanisms. The first and most important step is the creation of a digital property register. This will create a baseline record of properties in the tax net, which can then be updated through means like self-assessment, door-to-door surveys, and drone/satellite mapping. It will also enable automated valuation and digitised billing at scale. This can be combined with online payment options to make the process of paying dues and getting receipts faster and more convenient for citizens and governments alike.
A digital property register can integrate records from multiple departments or silos, serving as a “single source of truth” to which various users can refer. For instance, one source of revenue loss is that industrial or commercial properties—which would be charged higher taxes—are misclassified as residential properties. This is often a result of deliberate misrepresentation by owners/residents, rather than administrative error. With an integrated registry, such anomalies become apparent: a residential property registered for a trade license, or with an industrial-grade electricity connection, can be inspected and reclassified as needed.
Automating the billing process and making bills accessible through a website or mobile app can also improve collections significantly. In Andhra Pradesh, an integrated e-bill, combining property taxes and utility charges, was found to particularly enhance the convenience for citizens. They could receive real-time updates on payments due, and make a single consolidated payment at one click. It also cut down the time taken to raise bills from four months to one week and saved considerable money and effort on the billing process.
We have seen firsthand the gains from digitising state-wide property registries and property tax collection systems in Andhra Pradesh. Between 2015-16 and 2018-19, eGovernments Foundation worked with the Government of Andhra Pradesh to put in place an urban e-governance system across all 110 ULBs in the state; a digitally-enabled increase in property tax collection was a core objective of this effort. The number of properties enumerated across the state rose from approximately 27 lakh to 33 lakh properties, an increase of over 20% in four years. The revenue collected more than doubled, from about Rs 548 crore in 2015-16 to Rs 1,157 crore in 2018-19.
For ULBs, there is no more reliable source of revenue than property tax: the volume and value of other payments can vary, whereas property tax is stable and predictable. This makes it central to any credit rating exercise, which can open up the possibility of fundraising through municipal bonds. Digitisation is, in itself, a key first step to enhance property tax collection; it will also enhance the quality of subsequent analyses and policy decisions, by providing high-quality data from cities’ own administrative systems. State and local governments across India should see digitisation as a key to unlocking their revenue-raising potential.
Kumar is investment partner, Omidyar Network India and Tyagi, CEO, eGovernments Foundation. Views are personal