Importance of Property Tax & Reform

8/8/2019 Importance of Property Tax & Reform

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Importance of Property tax

Mukund Rathi


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S ources of Municipal FinanceS ources of Municipal Finance

-Taxes- User Charges and Fees

- Transfers


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Tax, Fees & Charges

Principal under local public finance for levyingtax, fees and charges for infrastructuredevelopment and provision of civic services :

Where benefits and beneficiaries areidentifiable, charge them;If benefits cannot be measured, butbeneficiaries are identifiable, levy benefittaxes;If neither benefits nor beneficiaries areidentifiable, levy general taxes.


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Origin of property tax

The origin of property tax is a British legacy.Initially, it was introduced as a contribution to corpus for

relief of poor in Britain. The rental value was introducedto measure individual capacity to contributeHowever, it is not the same in India. While inheriting theconcept of property tax, we adopted it as a local tax onlands and buildings to generate revenue for supporting

the urban local bodies.


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Tax on land and building is authority of

S tate as per item no.49 in the list 2 of the 7th

schedule of Constitution


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Distinction between rating

law in England and IndiaEngland India

Objective For relief of the poor

Revenue

Basis of taxation

Occupation Property


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(a) Water tax

(aa) Water benefit tax(b) Conservancy tax(bb) Conservency benefit tax(c) General tax & fire tax(d) Education cess(e) S treet tax

Sec. 129 BPMC Act 1949 Property taxes

of what to consist of


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What is Annual Rental/Rateable

Value

- Annual Rental Value of a building is the rental

which a building is likely to fetch.


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Assessment Procedure

Assessment of property tax based on (ARV)

ARV is calculated on actual rent or hypotheticalestimated rent

Deduction for repair etc. is given & taxable ARV is

worked out.


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Assessment Procedure

Property taxes are worked out as percentages of taxable ARV.Concession for self occupied properties .

Properties are classified on the basis of location, type of

construction & type of commercial activity.No taxes for vacant land.


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Key Issues of Property Taxation

S tagnant tax base due to Rent Control Act Arbitrary approach in assessment method

Lack of Equitability in taxation because of of irrational classification of properties.Unwarranted concessions and rebatesLoss of Tax basePoor Property tax administration


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ASSESSMENT ASSESSMENTOF TAXOF TAXCAN BECAN BE

ONON THE BASIS OF THE BASIS OF

Rental Value Tax base is

the annual rentthat can be derivedfrom the property

Capital value

Tax base isthe cost of land

pluscost of construction

Areabased

Tax is based onthe area of the land

plusbuilt up area

Most Common Property Tax

Assessment Methods


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RENTAL VALUE

PR OBLEMSRent Control properties have low rentsCourt judgments limit to Standard Rent

Rent deeds suppress actual rent paidRent is collected in the form of depositsetcPartnership in lieu of rentHow to assess properties not rented outHow to assess properties like schools,hospitals


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Approach to overcome rental

value problem Amendment in Rent Control Act for provision of a realistic mode of fixation of fair rent (Karnataka, Maharashtra)

Non obstinate clause in Municipallegislation for Delinking Property taxation

from Rent Control Act (Madhyapradeshand A.P.)


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Principal of Good Property

TaxationThe Guidelines provided by the Ministry of Urban

Development, G OI stipulates that a good property taxstructure have the following principles:

Low rate of property tax so as to make it acceptable by thepublic at large,Minimize the discretion on part of the assessor in tax levy,Make the process of assessment, levy and collectiontransparent and simple,

Ensure equity between classes of taxpayers / propertyowners, andFacilitate self assessment of property tax by the propertyowners.


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Property Tax Reforms initiatives

Patna ModelBanglore Model

Hyderabad ModelGujarat ModelDelhi modelMumbai Model


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Patna Model

- The definition of Annual Rental Value hasbeen defined as The Rent that a holding is

capable of fetching over a period of oneyear.- The rate of tax has been reduced to 9%

from 47.5%.

- Cont..-


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- The UAM has reduced the scope for subjectivity and discretion.

- In the new rules, no exemption has beenprovided to any type of building.- For specifying the type of construction, the

buildings have been classified into three

categories which makes a matrix of 3x3x3,as follows:-


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Patna Tax AssessmentS cheme (Rs. Per square feet)

Other Buildings

Pucca Buil-ding withAsbestos or CorrugatedSheets

Pucca Buildingwith RCCRoof

FullyResi-dential

OthersFullyComm-rcial or Indust-rial

FullyResi-dential


FullyResi-dential


TYPE OFCONSTRU-CTION

Holding on other RoadsHolding on the Main RoadHolding on the PrincipalMain Road

54.036.0 18.0 36.0 24.0 12.0 18.0 12.0 6.0

36.0 24.0 12.0 24.0 16.0 8.0 12.0 8.0 4.0

18.0 12.0 6.0 12.0 8.0 4.0 6.0 4.0 2.0


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Andhra Pradesh Municipal council

ModelDetermination of annual rental value Based on location ,

type of construction, use, plinth area , age.

Division of entire municipal area into convenientterritorial zonesFor fixation of ARV based on certain factors

Fixation of MRV on the basis of sample survey of 20%of buildings for prevailing rental value for various category

and Arriving at average MRV.


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Maximum and minimum benchmark monthlyrental values for different categories of propertiesThe S elf-assessment system was introducedwithout the amendment in Municipal legislation,using existing provisions onlyHMC Act. S ection 213 empowers the MunicipalCommissioner of the Hyderabad MunicipalCorporation to seek any information pertaining toany property within the city limit

Hyderabad Municipal Corporation

Model


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DELHI M OD EL

Unit of Classification is the Colony (1908 colonies)10 Parameters used for grading

Land Value , Average Rental valuePhysical Infrastructure, S ocial Infrastructure

Access to roads, Access to marketsType of settlement, Economic S tatus of occupants

Age of Colony, Zone located


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Each Colony is graded Good, Average,Poor in respect of each of the tenparametersGrade points given and totaledLocalities classified into seven categories Ato G depending on the marks obtainedList notified in the papersObjections, suggestions called for fromRWAs, Associations, individuals and heardList modified on the basis of this


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MOD IFYING FACT ORS

Colony Category A to GStructure Factor Pucca, semi pucca,kuchchaAge factor Prior to 1960, 60-79, 80-99, 2000-Occupancy factor Tenanted, Self occupied

Use Factor Public purpose, Recreation,Education and Hospitals, Public Utility, Industries,Business and Offices, Mercantile and Shops, Star Hotels and Banks

Street 80 ft and above, 45 and above to 80,less than 45


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Mumbai - Proposed Capital value

based ModelFormula: T = [( MV * Area * C* A) * (r *U)]

W here

T= Tax liabilityMV= Market Value per square Foot of propertyArea= carpet area propertyC= Construction category weight

A= Age factor weightU=User category weightr= rate of tax


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AIR 1962 S UPREME C OURT 151(From Calcutta: (S ) AIR 1957 Cal 466) 8th August 1961

B.P. SINHA, C.J., K. SUBBA RAO, RAGUBAR DAYALAND J.R. MUDHOL KAR, JJ.The Corporation of Calcutta, Apellant v. S m. Padma Debiand others, Respondents,Civil Appeal No. 268 of 1958

a) Municipalities-Calcutta Municipal Act (3 of 1932), S . 127(a) - Gross annual rent at which the building mightreasonably be expected to let-Implication of-Rental valuecannot be fixed higher than standard rent under Rent control

Act.


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A.P. Insertion of separate set of rules to calculaterent in Municipal Legislationupheld by A IR 2001 SUPREME COURT 2046

(ANDHRA PRADESH D/- 2-5-2001)

M.P. Municipal legislation Non obstinate clause Not withstanding anything content in any other law

for the time being in force helped to apply the

actual rent received instead of applying thestandard rent as to be decided in rent control act.


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AIR 1995 SUPRIM COURT 885(FROM : PATNA)

State of Bihar and others appellants Vs. S.K.Prasad Sinha& others

Classification of building into three categories on the

basis of type of construction Mere possibility of better classification Is no ground to strike down classificationmade by statutory authority more particularly in taxingenactment.


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Amendment in Rent Control

ActMaharashtra

The Maharashtra has also made

amendment in the Rent Control Act in1999, for annual 4% increase instandard rent enabling a little bitbuoyancy to the tax base.

Karnataka -S tandard rent can be increase by75% of annual inflation rate based onthe wholesale price index.

Importance of Property Tax & Reform

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