Photo credit: Financial Express
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 The valuation formula, which determines how much tax is charged on a property, is often indexed to outdated rental values—a poor reflection of the market value of the property today.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.
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