Property tax is one of the major fiscal
instruments of local governments in urban areas for raising their own revenues.
Two popularly used tax bases of property taxes in India are annual rental value
of the property and the capital value of the land. Most of the urban local
governments use the notional property rental values as the base for assessing
property taxes. In the notional property rental method, the tax base becomes stagnant,
and an upward adjustment of tax rates is the only way to increase revenues from
the property tax (Bagchi 1997, Rao and Ravindra 2002).RELATED: India Budget 2018: Winners and Losers
Local governments at the cities are
responsible for designing instruments to finance their activities with the 74th
Constitutional Amendment Act (1992). Many urban local governments have
initiated reforms to improve the property tax system. The reforms in property
tax focus primarily on improving the tax base and the administrative mechanism
on of the tax. The municipal governments in a number of Indian cities have
adopted the capital value of property method since 2004. In this method, values
per unit of land are estimated, and the tax base is the product of this unit
value and land area, plus the value of the property determined by some
multiplicative factors. It is highly
unlikely that the potential gains of the new method have been fully realised
partly because of the absence of a well-functioning real estate market for
accurate information on property values and high transaction costs that
adversely affect land prices.
The Kolkata Municipal Corporation (KMC)
and Newtown Kolkata Development Authority (NKDA) have adopted recently the Unit Area
Method of Property Tax. The
urban local bodies of Delhi, Bangalore and Pune also have introduced the
capital value system in their property tax assessment. This system is
simple and transparent, and property owners can assess their tax and submit the
returns. In this system, tax for a particular property is based on the annual
value of the property obtained by multiplying unit area value assigned to the
localities by the covered area of the property and the multiplicative factors
for occupancy, age, structure and use.
Multiplicative factors account for the wide heterogeneity
among properties within a conceptual block. This system is expected to reduce
disparity in assessment of similar properties within the same locality and
thereby ensures equity to the taxpayers, efficiency in tax collection,
neutrality in resource allocation, and accountability of tax officials. Equity in property taxation is horizontal
or vertical. Vertical
equity refers that a tax should be progressive in income or wealth. Horizontal equity, on the other hand,
refers that taxpayers with equal ability to pay ought to have similar tax burdens.
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RELATED: Use property tax collected over years to develop colony: Ansal to MCG
References
Bagchi, A. (1997).
“Reforming the Property Tax Base: Need for a New Direction.” Economic and
Political Weekly, 32(47): 3005-3010
Rao, U.A.V
and A. Ravindra, (2002). Reforming the Property Tax, New Delhi: UNDP
Mr. Panchanan Das
Professor, Department of Economics
University of Calcutta
Professor, Department of Economics
University of Calcutta
