7.1. Suggestions to Increase Revenue of Urban Local Bodies

♤ There is lot of scope for improvement in the area of Property Tax which is the most important source of revenue for local governments, such as:-

o Widening the tax base – Only 50-60 per cent property is assessed. There are several reasons for low coverage. With urban sprawls, a large number of properties fall outside the legal jurisdiction of the municipal bodies. State laws often provide for exemption to a number of categories of buildings such as those belonging to religious or charitable institutions. A large number of properties belonging to the Union and State Governments are not taxed because of the provisions of Article 285. All these properties use services like solid waste management, maintenance of approach roads and general civic amenities. Therefore, Local Governments should be empowered to collect ‘service charges’ in respect of these properties.

o Improving Collection Efficiency – It has been experienced that the collection efficiency of municipal taxes is in the range of 40 to 46%. Poor data base management, improper upkeep of records, collusion between tax payers and recovery officers and lack of understanding of the tax regime are the main reasons for low recovery rates.

o Making Property Tax Buoyant – The tax fixed for a property would remain unchanged till such time an overall revision in the property tax was undertaken in the municipal areas. Such revisions in some places did not take place for several years or even decades. The Unit Area Method overcomes this problem to some extent.

♤ As per 2nd ARC (Administrative Reforms Commission) suggestions, following principles in administration of taxes should be followed:-

o Transparent and objective levy of tax

o The cost of collection (for local body) and compliance (for tax payer) should be reduced to a minimum

o An independent unit under the Chief Executive to monitor the collection of all taxes

o Levies should be based on self-declaration accompanied by stringent penalties.

♤ The levy and collection of appropriate user charges for various services provided by municipality must be encouraged.

♤ State governments should enact fiscal management laws stipulating upper limits for borrowings where municipalities borrow from the market on the basis of their own rating.

♤ The institutional capability of municipal bodies needs to be enhanced as a necessary pre- condition for successful PPP projects.

♤ Land held by municipal bodies should be used as a leverage for raising infrastructure investment by leasing of these lands and also borrowing against the value of these lands.