How Delhi & Other Indian Cities Can Raise Property Tax Revenues

While cities in India have varying degrees of success in property tax collections, national capital Delhi's track record has not impressive. Before 2003, property tax was calculated according to the annual rent of properties in Delhi. This method led to an increases in the number of people holding on to vacant or idle land, because they generate lower rent, and, hence, lower expenses related to property tax payment. This is especially true of government agencies that hold on to unused real estate in Delhi.

Since 2004, property tax in Delhi is calculated according to the Unit Area System. In a unit area system, property tax is collected on the basis of covered area, including balconies, etc.

However, in the first six months of the financial year 2015-16, the New Delhi Municipal Council (NDMC) has collected Rs 295.3 crore as property taxes. This is the highest in the past five years and nearly five times the amount that was collected in the same period in the previous year. The reason is that the number of tax payers in this six-month period has risen from 673 to 7,306. Joining hands with residents' welfare associations in various parts of Delhi, NDMC had organised collection camps. This also led to higher property tax collection this year.

A look at how Delhi and other Indian cities can increase property tax collection and the number of properties assessed:

When stamp duty on transactions is high, buyers understate the value of a property. While the owner would not be able to use such a property as collateral for obtaining finance in a scenario like this, it would also hinders many potential transactions in future. Stamp duty is a type of tax collected by the government for property transaction. By lowering stamp duty, local authorities and governments can raise property tax revenues and lower transactions in unaccounted money.

So far, taxing happens on the basis of buildings and not on the basis of land on which it is constructed. By taxing land at its potentially highest usage value, local authorities can ensure that property tax covers the cost of primary infrastructure networks and other services in an area. This would:

A) Prevent valuable land from remaining idle.

B) Allow owners to keep land idle when there are long-run advantages in delay construction.

In many Indian cities, property taxes are based on rents, which lowers property tax collection because:

A) Rent controllers artificially lower the amount collected.

B) Properties that are let out are often properties which are relatively inexpensive.