as another mode of revenue in
which Municipalities can share tax
on hoardings and tax on advertise-
ments on buses, cars, lamp posts
and compound walls. Apart from
that entertainment tax is another
mode by which ULBs can raise
money.
Another major source of revenue
is to increase the floor area ratio
(FAR) in select pockets. Floor Space
Index (FSI) beyond a certain mini-
mum which can be claimed as a
right. Such charges can be pegged
higher because they get associated
with land costs and the cost of devel-
oped property. ULBs can use these
instruments, but they need approval
from the state Government.
The cost of Smart City improve-
ments is assessed to Property Taxes
by local bodies. Revenues from in-
creases in property tax are escrowed
for a defined period of time to fi-
nance new infra investments in the
area – This would also enhance ac-
countability by linking expenditure
with outcomes relevant to local resi-
dents.
Conversion charges are collected
at the time of land use conversion,
for example from rural to urban use,
and from residential to commercial
use. A part of land conversion
charges can be shared by State Gov-
ernments with municipalities
States should prepare a clear
framework of rules for the levy of
betterment tax Impact fees distin-
guish between differing impacts
that buildings have on urban infra-
structure and are charged at the
time of giving building permission.
Sometimes separate rates are pre-
scribed for residential and commer-
cial buildings.Challenges
In the country, sustaining in huge
subsidy and free natural resources
like water, the model is fraught with
many political and social risks. Vari-Cover Story
ous cities like Bhubaneswar, Kochi,
Jaipur which has imposed user fee,
citizens have strongly objected to it.
In Bhubaneswar City mayor AN
Jena said there the user fee can’t be
scrapped. “The BMC’s income is not
more than Rs 40 crore a year and it
provides a host of services to people.
Our collection from holding tax is
around Rs 20 crore, but the BMC
spends Rs 45 crore for solid waste
management alone,” Jena said.
The BMC has not increased the
holding tax rate since 1979, the
mayor said to levy user fee was de-
cided according to the Odisha Mu-
nicipal Corporation Act 2003.
However the after sensing the
growing resentment among people
BMC announced to waive user fee
collected for the last financial year.
Similar cases are in other cities. This
is posing a greater challenge for the
ULBs to raise additional funding.
Another challenge is that cities
have to get the approval of state gov-
ernments for levying user charges
and this hampers their ability to set
user fee rates that they consider ap-
propriate. The power to levy charges
must be in the hands of the city to
improve service provision.
Reform in Property Taxes collec-
tion can also go a long way in im-
proving the finance of the city. Infact, the Thirteenth Finance Com-
mission also estimates that if all-In-
dia property assessment rates and
collection efficiencies were both at
85%, the revenues generated by
property taxes would be 0.68% of
GDP, three to four times their cur-
rent levels.
The implementation of Geo-
graphical Information Systems
(GIS) to map all the properties in a
city can have a huge impact on the
assessment rate of properties as it
provides the municipal administra-
tion a visual, spatial tool pinpoint-
ing the location of properties that
are not in the tax net. Ahmedabad,
Bangalore and Hyderabad have GIS
maps now that are beginning to be
used for property tax assessment.
Without healthy internal revenue
sources like the property tax and
user charges, it will be difficult to at-
tract new, external sources of fund-
ing like bank loan, Municipal bonds
and other resources. Periodic revi-
sions in user charges are also re-
quired.
Unless cities are able to generate
much higher levels of revenue
through property taxes and user
charges, it is difficult to see how the
mandate for higher quality public
service delivery in India can be
achieved.<