Citizens' Issues
Debate hots up over new Mumbai property tax structure based on capital value

Under the new system, residents of old buildings are likely to be charged a higher amount, while those residing in not so old constructions may not be affected much

The Brihanmumbai Municipal Corporation's (BMC) switch from a property tax system based on rateable value to a property tax structure calculated on the capital value has received mixed reactions, since property taxes may go up for residents of old buildings, but remain about the same or even come down for flat owners in new buildings.

The new property tax system was drafted by a three-member committee appointed by the BMC. The members were MD Sukhtankar, former municipal commissioner, Roshan Namwati, a valuation expert, and DN Chaudhari, state law commission president. The new system was announced on 1st April 2010, but has not been enforced as the tax rate has not been fixed yet.

The BMC has put up a copy of the draft rules on its website (http://www.mcgm.gov.in/irj/portalapps/com.mcgm.aaboutus_
overview/docs/DraftRulesFixingCapitalValueLandsBuildings_E.pdf
) and has invited citizens to submit their objections and suggestions by 30th November. Copies of the rules have also been made available at local ward offices.

In the rateable value-based system, the property tax was calculated on the basis of the rent which any rental property is likely to generate and for self-occupied properties it is based on a notional value. But, under the capital value-based system, the property tax is to be calculated based on the market value of the property. There are several factors like flat area, age of building, usage of land and type of construction that is also considered. To determine the market value, the BMC has adopted the rates from the stamp duty ready reckoner with slight variations. Once the market value is decided, it will remain constant for a period of five years, while the tax rate will be decided every year.
 
Under the new capital value-based system property taxes are likely to go up in south Mumbai, while residents in the suburbs may get some relief from the current property tax levels.

According to Ashutosh Limaye, local director, Strategic Consulting, Jones Lang LaSalle India, the property tax system is only being rationalised. "In south Mumbai, owners have been enjoying low property tax for a long time though property prices were high. Now, under the capital value system, the tax would be rationalised. People, who are living in the suburbs, have been paying higher property tax despite their property value being lower than South Mumbai properties," Mr Limaye told Moneylife.

Taxes in old buildings in the island city have not changed much due to the Rent Control Act, whereas most buildings in the suburbs do not come under the Rent Control Act and pay hefty taxes despite the capital value being lower than that for properties in the city. It has been reported that the capital value tax will not be more than twice the rateable value tax, and will not decrease to less than half the existing tax on the rateable value system.

"This is a welcome move by the BMC after ten years. Rented property will now have a better future," Santosh Kumar, author of the Stamp Duty Ready Reckoner & Market Value of Flats in Mumbai, told Moneylife. He explained that under the rateable value system, tax for rented property was charged on the amount of the rent payable, but if the property was self-occupied one would have to pay tax on a notional rent fixed by the BMC. "Owners in the elite South Mumbai areas who had given their properties on rent were opposing the old tax system as they were required to pay more tax on their property. Under the new system, the tax will be almost the same whether the property is given on rent or self-occupied. The only thing that is not clear yet is what the rate of tax will be," Mr Kumar said.

Residents, who live in a flat that is less than 500 square feet (sq ft), will have to pay the existing property tax rate for five years and this will be charged annually. "Another thing in the new system is that those people who are paying very less will also be benefited, because their taxes will continue according to the old tax rates if their area is up to 500 sq ft," Mr Kumar said.

Mr Kumar felt that people were opposed to the new system primarily due to ignorance. "They do not know what the new system is. Only because some media reports and vested interests have given the impression that taxes will shoot up, that is not right," he said.

Raj Purohit, members of the Maharashtra Legislative Assembly representing Colaba in South Mumbai, is critical of the new structure. "Instead of increasing property taxes in South Mumbai, property taxes in the suburbs could have been reduced. The capital value-based system is hypothetical. Even if a building is valued at Rs100 crore, it may not fetch a rent of even Rs10,000. The issue has attracted more attention after the hue and cry from residents in the suburbs," Mr Purohit said.

Mr Purohit, who is also president of the Mumbai Tenants Association, told Moneylife, "There are many people in the island whose property value is in millions of rupees but their economic condition is poor; how will they pay such a huge tax? This system will bring imbalance in the city and it will also hamper commercial property investments as corporate offices will prefer other cities like Bangalore, Delhi or other major cities in the wake of higher property taxes."

The BMC has already issued the property tax bill for the first half of the year according to the rate under the old system as the new system was not ready to be implemented. The bill for the second half would likely be issued in December and if there is any change in the rate, the difference for the first half would be adjusted in this second bill, Mr Kumar explained.

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COMMENTS

Java

6 years ago

"There are many people in the island whose property value is in millions of rupees but their economic condition is poor; how will they pay such a huge tax?"
Poor indeed. May be they can sell off one of their cars or have one servant less!
Seriously, they can always sell the property and buy something cheaper in the suburbs.

RBI policy may change if industrial growth slides further: Basu

New Delhi: Within days of India reporting a 16-month low industrial growth of 4.4% for September, a top government economic advisor today said industry is expected post a recovery in October, else the Reserve Bank of India (RBI) will have to change its tight money policy stance, reports PTI.

"The data that you will get on December 12 (for October) should see a reasonably good recovery. If that does not happen then we will have to think in terms of policy change," chief economic advisor Kaushik Basu said on the RBI monetary stance.

Speaking on the sidelines of a summit at International Management Institute, he said that growth in the Index of Industrial Production (IIP) in the last two months has been a disappointment.

"But going by the base effect...I expect a sharp recovery, especially in the manufacturing sector, over the next month (October)," Mr Basu said, adding that the country is on track for a good fiscal despite the slowdown.

He said, "I think the RBI policy has been a very matured and balanced policy...What it does on policy rates and such things will of course have to be evaluated and decided."

The CEA said he also expected a sharp decline in inflation within weeks.

"I think we are going to see in the next couple of weeks, including December, pretty sharp decline in inflation. So I expect us to move into a pretty good zone of inflation over the next month...next three weeks...the data you will get on food. And the middle of December should be an improvement," Mr Basu said.

Industrial growth fell for the second consecutive month to a 16-month low of 4.4% in September. It was 6.91% in the previous month.

The wholesale price index (WPI) based inflation has also come down to 8.58% in October, after being in double digits during the initial months of the year.

However, food inflation is still high and clocked 12.30% for the week ended 30th October.

Combined with declining inflation and industrial growth numbers, many analysts feel that the RBI will press a pause button in its tight money supply stance, an indication of which was given by the central bank itself in its 2nd November policy review.

The RBI has hiked the short-term lending (repo) and borrowing (reverse repo) rates by 150 and 200 basis points, respectively, this year. On 2nd November, it had hiked both the rates by 25 basis points for sixth time this year.
 

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CAG indicts Raja, says he ignored PM, law, finmin advice

New Delhi: The Comptroller and Auditor General (CAG) today indicted former telecom minister A Raja for ignoring the advice of the prime minister, finance and law ministries to allocate second generation (2G) spectrum to new players in 2008 causing a whopping revenue loss of over Rs1.76 lakh crore, reports PTI

In the report, tabled in both houses of Parliament, the CAG noted that the ministry of communication and IT "decided to go ahead with arbitrarily deciding that the cut-off date for issuance of Letters of Intent would be advanced to 25 September 2007 and applications received would be decided on FCFS (first-come first-served) basis."

In November, 2007, prime minister Manmohan Singh had written to the telecom ministry suggesting introduction of "transparent methodology" of auction, "revision of entry fee" in the "backdrop of inadequate spectrum and large number of applications received for fresh licences."

The CAG highlighted that the law ministry had suggested setting up of an Empowered Group of Ministers (EGoM) to discuss the large number of applications and spectrum pricing, but the telecom ministry rejected it saying "the need for forming an EGoM arises when a new policy is being framed and in this particular issue no new policy for grant of UASL (unified access service licences) was being framed."

The auditor, however, said the "contention of the Department of Telecom (DoT) is untenable as the rejection of the advice" of the law minister to have detailed deliberations on the issues in the EGoM on the ground that changes in policy might lead to litigation "goes against the well established and time-tested procedures of functioning of the government and the collective responsibility of the Union Cabinet."

The report said the presumptive loss caused to the exchequer through spectrum allocation to 122 licensees and 35 dual technology licences in 2007-08 was Rs1,76,645 crore. It pegged the figures on the basis of third generation (3G) auction held earlier this year in which the government mopped up over Rs67,000 crore.

In the 77-page report, the CAG said the figure of the presumptive loss has been determined on the basis of various indicators like 3G auction and a price offered by an operator in 2007, besides scarcity value, nature of competition, business plans envisaged, number of operators and growth of sector.

The auditor pointed out that spectrum was allotted by DoT to the existing operators beyond the contracted limits (6.2 MHz) without imposing any upfront charge for such allotment.

On the values determined through various indicators, the presumptive value of 2G spectrum on account of grant of 157 licences in different circles during 2007-08 would be in the range of approximately Rs58,000 crore to Rs1,52,038 crore.

The value of spectrum held by 13 operators for 51 circles based on the 2001 rates works out to be Rs2,561 crore, while its value based on above indicators like 3G auction would be Rs12,000-Rs37,000 crore.

The CAG said that 85 out of 122 new licences issued to 13 companies in 2008 were granted to ineligible companies as all of them (85) did not have stipulated paid-up capital at the time of application.

Further 45 out of 85 licensees were issued to companies which failed to satisfy conditions of main object clause in the memorandum of Association (MoA), the government auditor said.

The CAG said the process of giving dual technology licences to leading telecom firms including Reliance Communications and Tata Teleservices "lacked transparency and fairness", and equal opportunity was denied to other similarly placed operators who could apply for use of dual technology only after formal announcement of the policy.

Noting that this approval (dual technology use) had violated the Cabinet decision of 2003 to allow additional spectrum at 2001 prices, the auditor said, "Deviation from a Cabinet decision should normally be with the approval of Cabinet.

"However, in the present case, such a crucial decision to permit service providers to offer access using combination of technologies (CDMA, GSM and/or any other) under the same licence with dual spectrum allocation was taken without the matter being referred to the Cabinet."
 

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