ULBs must get finances right, CAG report on Karnataka highlights problem areas

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Published: November 21, 2019 12:15:41 AM

The Economic Survey 2017, based on a Janaagraha analysis, had stated that municipalities could earn more by correctly assessing the tax due.

Overall, ULBs in the state saw tax collections as percentage of demand raised fall to 54% in 2017-18, from 62% in 2013-14. (Representational image)Overall, ULBs in the state saw tax collections as percentage of demand raised fall to 54% in 2017-18, from 62% in 2013-14. (Representational image)

With fund devolution from states often delayed and inadequate, one would think that urban local bodies (ULBs) would look to strengthen their tax revenues—from property tax and/or professional tax. However, as a recent report from the Comptroller and Auditor General (CAG) of India on ULBs in Karnataka shows, even in a top-tier city like Bengaluru, local governments have dropped the ball on tax collection. The Bruhat Bengaluru Mahanagara Palike (BBMP), which had been named the worst performing ULB in Janaagraha’s Annual Survey of India’s City Systems 2017, saw its collections as a proportion of the budgeted estimate slip to 60% in 2017-18, from 66% in 2015-16. Overall, ULBs in the state saw tax collections as percentage of demand raised fall to 54% in 2017-18, from 62% in 2013-14. While the report doesn’t state reasons to explain the shortfall, the CAG’s findings in the case of the Shimla (Himachal Pradesh) ULB are instructive—authorities not only failed to collect any fraction of a Rs 1.77 crore tax demand raised against a company, they also didn’t take any punitive or legal action for three years.

The CAG report also talks of how BBMP has repeatedly defaulted loan repayments despite provisioning for these in the budget and availability of sufficient funds, including the portion devolved from the state government. This has caused an avoidable penal interest of Rs 20.07 crore to be levied. Such mismanagement is not specific to the ULBs. While the 13th Finance Commission had recommended that states set up a property tax board to assist ULBs in coming up with a transparent process to assess property tax, Karnataka hasn’t done this.

The Economic Survey 2017, based on a Janaagraha analysis, had stated that municipalities could earn more by correctly assessing the tax due. In the case of Bengaluru and Jaipur, Janaagraha had estimated that the cities collected just around 5-15% of the total property taxes due in principle. Bengaluru, for instance, could raise as much as Rs 4,360-8,694 crore as tax from property. Matching real-time satellite imagery with cartographic archives could help identify untapped property tax potential, even evasion. But, as the CAG report shows, the problem is not just of inadequate funds, but also of poor handling of available funds. While OECD countries have an average property tax collection of around 1.9% of GDP, India’s is a much lower 0.2%. The system, thus, is in dire need of a revamp. Ranchi, with its PPP model of tax collection, can be one example—property taxes rose five times in the city in just two years. Raising money via municipality bonds to fund infrastructure could be another. Once ULBs gain a satisfactory record on generation of tax revenue, even municipal bonds that could bolster ULB finances significantly could take off.

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