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Does the property tax need revision
Source : The Hindu Property Plus Published On : 2007-11-10 City : Chennai

The Government of Tamilnadu recently issued an order instructing all local bodies to revise their property tax rates by Apirl 2008. The Chennai corporation is expected to follow the direction and revise the tax rates.


The questions on many lips are : is it necessary to revise the tax and how far will it help? The government order states that the property tax was last revised in 1998 and the next revision was due in 2003.The order implies that the revision is already four years late. Those in support of revision indicate that the property tax is not commensurate with the market value of the property or the rent it fetches. The Madras city Muncipal Corporation Act 1919 deals with the property tax. The act states that the period between two revisions must be five years and that the ‘Commissioner may revise’ the property tax in accordance with the provisions of act.


Different methods of property tax calculation are used in India. Chennai follows the rateable value system where the property tax is calculated as a percentage of the annual rental value. New Delhi uses the ‘ unit area ‘ method where a value is fixed for a square metre of space based on its location. In Chennai , the half yearly property tax rate ranges from 6.62 per cent to 12.40 per cent of the annual rental value. In Kolkata , which uses the same method as Chennai , the property tax rate ranges from 11 per cent to 40 per cent of annual rental value. In Hyderabad it is 30 per cent.


For simple calculation purpose , Chennai Corporation assumes that the monthly rental value of owned residential building is betweet 50 paise and Rs.2 per sq.ft. for commercial buildings , it is between Rs.3 to Rs.9 . However , the market rental value for a residential building is nothing less than Rs.5 per sq.ft and Rs.15 per sq.ft for commercial building. What is overlooked in the demand for property tax revision is that the tax base of various local bodies including Chennai is imperfect. The comptroller and Auditor General of India (CAG) report for the year ending March2006 observes that in many municipalities of current property tax demand is poor.


Chennai Corporation tax base comprises of 5.83 lakh properties. Many properties are grossly undervalued and some are not even included. The CAG report has also pointed out that property tax damands in certain cases have not been properly raised. The report also points out to instances of short assessment. The Corporation recently dedected that 35,181 commercial and mixed use buildings were undervalued or not assessed. Reassessment of these properties showed that the building owners owed the Corporation Rs.267 crore , Corporation commissioner Rajesh Lakhoni said.

The computerisation of properties and the tax arrears reveals that property owners owe about Rs. 700 crore to the city. The revenue loss due to this has been significant. Without updating the tax net , without improving its collection mechanism , without tightening its vigilance , just a simple revision of property tax rates will not be of much use.

For example, the current property tax collection of Chennai Corporation is about Rs.280 crore. The maximum Government may be willing to rise ( general revision ) is about 25 per cent. Anything more may be resisted. This was also the rate of revision in 1998. If the tax werw revised by 25 per cent, the total collection would increase to Rs.350 crore. An addition of Rs.70 crore will be collected. Instead if the tax net is elaborated and tightened the experts say , tax collection would easily double and reach Rs.600 crore annually. C.H.Gopinath Rao, former National President , Institution of Valuers,think that there are many buildings that have deviated from the approved plan and built more. If these extensions are taken into account the collection will be much more, he says.


Collection of Arrears


 At the Chennai Corporation Council meeting held on Novenber 28, Congress councilor Saidai P.Ravi , also the Opposition party floor leader , said that the issue of collection of arrears from re-assessed commercial and mixed commercial buildings must be sorted out before any revision is made. In response , Mayor M.Subramanian said an all party meeting would be convened before any revision of property tax.

The Chennai Corporation estimated budget for 2007-2008 is Rs.702 crore. In this property tax contribution is expected to be Rs.280 crore, amounting to about 40 per cent. Government contribution to corporation is about Rs.40 crore , which is only about 5 per cent. In the event , the corporation is able to collect,say Rs.600 crore of property tax annually , then there will be no need for Government grants. With a buoyant property tax collection , the corporation will become cash surplus and can take up good deal of development projects . Much can be achieved without revising the tax.


The argument that the property tax is much below the market value is valid and certainly needs an upward revision . The fact remains that those who have honestly declared will continue to pay higher taxes while those who have not done so will continue to pay lower taxes. Widening the tax net and improving the collection efficiency could be the immediate priority.



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