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Get it right - 25th August, 2007. Times Property (Times of India)

It's time the authorities give a detailed account of the way the property taxes levied are being utilised

Property taxes are a suite of taxes levied on land and buildings. Globally two broad systems of calculating property taxes are prevalent. The British system which is based on Ratable Value (RV), and the other system followed in the US, Germany, Austria and Denmark is to base property taxes on the Capital Value (CV) of the property.


Mumbai still follows the RV based system introduced way back in 1888 by the Bombay Municipal Corporation (BMC), calculated as the annual rent that a property fetches or is expected to fetch. The issue of property tax in Mumbai is closely linked with the Maharashtra Rent Control Act of 1999, which has more or less frozen rents to 1940 levels or allowed a maximum hike of five percent effective from 2000.


The existing system offers a cushion to age-old residential as well as commercial properties. For instance, the property tax for a residential property built in 1960 is calculated on the basis of the construction cost in 1960 and the rent it fetches to the landlord. The Rent Control Act does not allow for re-assessment of properties unless altered.
Thus the island city, which is home to old properties mainly in South Mumbai, has to shell out minimal property tax but the same is exorbitantly high in suburbs. Residential property owners in suburbs have been paying more property tax, much more than their friends and counterparts in South Mumbai because properties in suburbs, which are built in the last decade, carry a much higher construction cost and rent.


In an attempt to iron out the big disparity in property taxes in Mumbai, the state government is all set to finalise the levy of property tax on the basis of an alternate system. Switching to the proposed CV system, property tax will be a percentage of the market value of the premises, where market value is the figure set in the Stamp Duty Ready Reckoner. If the BMC shifts to the new system, it is quite mandatory that they revise rates in the Ready Reckoner, as there is a huge gap between rates indicated in the present Reckoner and prevailing capital values. But is it justified to take just the market price as the main criteria for levying taxes?


In New Delhi, the unit-based system of collecting property tax was implemented in 2004. The Delhi government had taken into consideration ten parameters, classifying 1,800 societies into eight categories. Tax liability is calculated based on several factors like covered area of the property, structure and condition of the building, amenities offered, and proximity to the station or market. Incidentally this system has also bagged a United Nations award for progressive taxation.


Recently, some articles have mentioned that despite the real estate boom, the BMC has not benefited. Taxes are not collected for the benefit of any institution but for the upkeep and development of the city. It is justified when Singapore or any developed city charges such property taxes, they do deploy the funds back into the city. "Property taxes should be not be increased but balanced." What I mean by this is, if they plan to revise and have fair property taxes charged to South Mumbai locations they should then decrease the heavy taxes in suburbs. If they plan to continue charging heavy taxes, as tax paying citizens, we would want to know every detail "for what are we paying"? A detailed road map and plan should be made available for public awareness.


In our office lane there are no walking pavements or footpaths, so every pedestrian is walking on the road. This is a newly developed location with no planning from the Municipal Corporation. It is almost planned as if everyone is going to be in a vehicle and there will be no pedestrian. What do you think will happen when people are trying to walk and drive on the same path? But when it comes to collecting revenue and taxes they have no qualms in staking claims as high as Rs. 6 per sq.ft per month for our 3600 sq.ft office (charged on super built up area) which brings it to almost Rs.21,600 a month for just the property tax. The entire layout in the region opposite Laxmi Industrial Estate and Fame Adlabs has private roads, where the BMC claims that it is not their responsibility for maintenance, then why don't they reduce the taxes on pro-rata basis? Why are we paying taxes on par with someone else having a municipal road?


I think it is about time as tax payers we got accountability. Considering the influx the city has, and keeps adding every day, I think the Municipal Corporation is doing a good job but there seems to be an obvious divide in the suburbs, in the upkeep and planning. The state government has recently proposed to establish an independent body under the BMC to manage private and public water supply, and construction and maintenance of drains. In my modest opinion, this could easily be handled by MMRDA, which seems to be solely on a collection spree from revenue raised through sale of land in various locations. I think if part of those funds were deployed back to the city- since it does belong to the city and not the state government, it could lessen the property tax burden.