Rollback Of Property Tax Hike In Delhi May Be A Hasty Decision

The South Delhi Municipal Corporation standing committee that examined the third Municipal Valuation Committee (MVC-III) report in 2011 pointed out some errors in the submission at that time. (Many demerits of the recommendations made by the panel would be unearthed in the times to come.) Among many of its suggestions, the MVC-III, set up to suggest ways to improve real estate and revenue structure of various municipal corporations in Delhi, had recommended upgrade of all industrial areas to Category B. The idea was to help municipal corporations in Delhi earn better revenue by imposing higher property tax through colonies' upgrade.

When the errors were rectified and loopholes plugged, municipal corporations started implementing the suggestions of the report last year. However, the move did not yield the expected results.

According to a Business Standard report published in February this year, Delhi's municipal corporations — East Delhi Municipal Corporation (EDMC), North Delhi Municipal Corporation (NMC) and South Delhi Municipal Corporation (SDMC) — were facing a huge liquidity crunch. The report cited uneven allocation of assets, reduction in budgetary allocations and the Arvind Kejriwal-led Aam Aadmi Party (AAP) government's failure to implement the recommendations of the Fourth Finance Commission as reasons for these civic bodies' failure to collect better revenues.

What else could have added to the corporations' woes? Perhaps taxpayers' unwillingness to make payments on upgraded properties. Property tax is a key source of revenue for municipal bodies and the national capital is divided into seven categories — from A to G – for tax-collection purposes. The higher the category, the higher the amount one has to pay as property tax. The number of colonies that fall in the premium categories are few. Of the 827 colonies under the NMC, only 22 are classified under A, B and C categories, while the SDMC has 121 of its 1,038 colonies colonies under these categories. The EDMC, which has 469 colonies under its jurisdiction, has no colonies classified under the premium categories.

Had the property tax hike move been better received by the taxpayer, the upgrade of colonies could have triggered a substantial increase in revenues.

To a large extent, this explains why the EDMC and NMC have decided to roll back the recommendations of the MVC-III report, along with the raise in property tax. While the EDMC had implemented a property tax raise in 2015, the NMC implemented this earlier this year.

After the rollback, home owners and business in Delhi may get a respite for the time being; if the upgrade had taken place, there could have been a four- to seven-fold increase in an individual's property tax payment. In the long run, however, this people-pleasing move might hit municipal bodies harder, and its impact could be felt by the common man, too.

The revenue earned through property tax collections is, after all, spent on building and improving public infrastructure as well. (The media had earlier reported that municipal corporations had a tough time convincing authorities to issue funds before they were able to pay the salaries of their staff.) The civic bodies, if they remain cash-strapped, are unlikely to be able to provide its citizens a system that is becoming of a world-class city.

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