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City property tax may not rise yet
Politics has once again prevailed over civic reforms in Mumbai. The Vilasrao Deshmukh government has deferred the move to rationalise the civic property tax system in the city, reports Economic Times.
Faced with a stiff opposition from the Shiv Sena-BJP, the government has decided to refer the proposed legislation seeking a shift from the archaic rateable value system of assessing property tax to a more pragmatic capital value system to a joint committee of both the houses of Maharashtra legislature.
This effectively means that the state government has put the reforms on the backburner. “All political parties have more stakes in the civic elections early next year than in civic reforms. It would have been difficult for them to sell the reforms had the legislation been passed,” a civic official told ET.
Under the norms for the Centre’s National Urban Renewal Mission (NURM), it’s mandatory on civic bodies to carry out reforms in property tax structure. The Planning Commission and the World Bank, which is financing some of Mumbai’s infrastructure projects, have also called for a realistic and modern system of calculating property tax.
The Shiv Sena-BJP ruled Brihanmumbai Municipal Corporation (BMC) had engaged Tata Institute of Social Sciences (TISS) to conduct a survey of all systems of assessing property tax prevailing in India as well major metros across the world. The TISS study found that a majority of cities in developing countries favour the capital value system and recommended it to the BMC.
In ’03, the BMC submitted a proposal to the state government seeking powers to switch over to the capital value system. “Even before the TISS study was commissioned, the BMC was convinced that the rateable value system was useless for Mumbai which wants to be on the fast track of urban development,” a civic official said.
The BMC sought an amendment to the BMC act of 1888 from the state government to switch over to the capital value system. But the amendment bill has been referred to the joint committee of the legislature which would study it for six months.
“It simply means the shift has been indefinitely postponed. The committee will take a minimum six months to study the bill. It’s certain that the bill won’t come to the legislature for 8-9 months,” an urban development secretary told ET.
ET had reported earlier this month that the Shiv Sena-BJP rule at the BMC was against shifting to the capital value system at least before the civic elections. “But the state should have at least carried out the amendment to put BMC under pressure.
The state is responsible to ensure that civic reforms are carried out if it wants to overhaul Mumbai’s infrastructure,” a BMC official said.
Even Mr Deshmukh, who holds the urban development ministry, justified capital value system as being a realistic, transparent, flexible, and related to inflation in real estate prices and lifestyle while moving the bill. But the chief minister, who was equally radical about making Mumbai free of illegal slums in the early part of his second term, succumbed to political pressures.
The rateable value system coupled with the Maharashtra rent control act provides a cushion to age-old residential as well as commercial properties against a realistic hike in the property tax. Property tax under the rateable value system is calculated on the basis of the annual rent for the property in question.
In Mumbai, all rental properties have the protection of the rent control act, which has virtually frozen the rent to the 1940 levels (or allowed a maximum hike of 5 per cent effective from 2000). “Since rent control regulation has existed in Mumbai for around 65 years, actual rent is rarely used as the basis for assessing property tax.
Mostly, pre-1940 rental levels or marginally increased rent are used to calculate tax,” the chief minister’s justification for shifting to the capital value system says. So, the island city, which is home to old properties, has to shell out a minimal property tax but the same is exorbitantly high in suburbs.
The capital value system, however, factors current capital cost and life of the property, its location, quality of construction, and even cost of the living of the inhabitants.