It may look surprising but it is a fact that the property tax revenue of the municipal bodies in Delhi is much more than that of bigger states including Uttar Pradesh, Madhya Pradesh, Rajasthan and many other states.
There is a large-scale variation in property tax revenue of municipal bodies of different states. For instance, municipal bodies in Delhi and Gujarat recorded the property tax revenue receipts of Rs 2,940 crore and Rs 1,548.69 crore respectively during 2019-20. On the other hand, the property tax revenue of Uttar Pradesh and Rajasthan was Rs 936.77 crore and Rs 343.98 crore respectively during the same year.
A latest report by the RBI on the financial condition of municipal bodies in the country has disclosed that municipal bodies in states like Delhi, Gujarat, Maharashtra, Chandigarh, and Chhattisgarh collect higher taxes relative to other states.
The report has noted that the collection system is marred by challenges of pending litigation and inadequate staffing in municipal bodies and there is a need for large-scale reform of property taxation practices in India. It also said that despite its dominance over other municipal taxes, property tax collection in India is much lower compared to the OECD countries due to several factors including property undervaluation, incomplete registers, policy inadequacy and ineffective administration.
It also noted that poor enforcement mechanisms, coupled with multiple outdated exemptions, dated property rolls and databases, sub-optimal tax rates, property undervaluation and weak tax administration have resulted in significant under-recoveries in the majority of the Indian cities.
While the level of urbanisation and the urban population density bear a positive correlation with the amount of property tax mobilised, there are several corporations which have been able to generate relatively higher revenue at much lower levels of urbanization, said the report.
It also highlighted that the potential of property tax needs to be fully leveraged by extending coverage, regular revision of tax rates, improving the assessment system and raising efficiency in tax administration.
"For the smaller MCs, lack of institutional capacity to undertake these reforms constitutes the main challenge and assistance from the state governments in this regard may be helpful. For the larger corporations, it is vital that the expansion of tax base and increase in efficiency of tax collection are achieved through the use of technologies such as satellite photography and geo-coding of data," said the report.
The report has said that most municipalities in India do not have balance sheets in the public domain and many of them continue to follow a cash accounting system.
"Municipal laws do not prescribe any uniform accounting standard to be followed, rendering municipal accounts largely incomparable across states and even within a state. Most municipalities only prepare budgets and review actuals against budgeted plans but do not use their audited financial statements for balance sheet and cash flow management, resulting in significant inefficiencies," it said.
"This report, the first of its kind, seeks to bridge this data gap through compilation of available budgetary data of 201 municipal corporations in India across all states," it said.