20,000 People Did Not Pay Property Tax In Delhi. Why Is The Tax Unpopular?

Throughout human history, property tax was unpopular. Thousands of years ago, when Rehoboam's primary tax collector Hadoram set out to collect revenues, Israelites did not take kindly to it. They threw stones upon him till he died. Even today, property tax continues to be unpopular. According to the New Delhi Municipal Council (NDMC) , 20,000 people did not pay tax on their property in Delhi under the rateable value system, as reported in The Economic Times on July 8. The NDMC estimates a loss of Rs 300 crore.

Surprisingly, government agencies in Delhi default on property tax more than private individuals do. Governmental organizations and agencies owe the three municipal corporations in Delhi around Rs 2,000 crore. As property tax is contentious, this has led to long-standing legal battles, costing municipal corporations greatly. The municipal corporations are not trying to settle the matter out of court.

The collection of property tax across the world is abysmal and is typically around 20% of the revenues of urban local authorities. Even in developing countries, the revenues that accrue from property taxes is often 1-3% of the revenues of governments.

But, why is property tax so unpopular and property tax collections so low?

1. There are many reasons why this happens. Though it is true that governments, especially the municipal corporations in Delhi, are inefficient in collecting property tax, this is not the only reason why property tax revenues are low. The formula used to calculate property tax is one. For example, when the Unit Area Value system of calculating property tax in Delhi, the property tax collection declined steeply. In the recent past, the per capita property tax collected in Delhi was lower than that of many smaller cities.

3. The rateable valuation system, which caused NDMC a loss of Rs 300 crore, for instance, calculates property tax based on rent. Rent is normally calculated according to the standard controlled rates imposed by local authorities. Economists estimate that this severely affects property tax revenues, and that in Indian cities like Calcutta, revenues would be twice as much as the current revenues.

4. In Delhi, many properties are absent from the property tax roll. Many properties that exist on the property tax roll are not accurately valued. Moreover, the municipal corporations are not efficient in the collection process.

5. It's argued that property tax is an indispensable and attractive source of revenue for urban local governments. A major reason is that the tax base is broad and expanding. But, some of the popular suggestions to improve property tax collection have already been implemented in Delhi. For instance, in Delhi, the municipal body uses a formula driven system instead of purely relying on the declaration of owners. It also uses tax maps instead of relying on the valuation of tax payers themselves. The price of real estate in Delhi varies widely.

6. A major suggestion, which is not yet implemented, would be difficult to implement. The government, it's suggested, should find out who the defaulters are, and make tax payers accountable by issuing tax clearance certificates to people who are regular on payment.

However, many economists who are otherwise sympathetic to the property tax system, think that as the political cost of property tax is high, and the revenues so low that governments should find other means to find revenues.