labels: crisil, economy - general
Property tax can be doubled, even quadrupled: CRISILnews
27 July 2006

An increased thrust on infrastructure development has intensified the pressure on municipal corporations to augment their revenues. CRISIL estimates that municipal corporations will be required to contribute more than Rs300 billion over a seven-year period as their share of funds towards projects executed under the Jawarharlal Nehru National Urban Renewal Mission (NURM), government of India's flagship scheme launched in December 2005.

Generating funds of this order will require municipalities to look seriously and creatively at their revenue sources.

Among the conclusions of a recent CRISIL study on how municipal bodies can improve their revenue profiles, is that property tax, a sustainable and equitable revenue source for municipal corporations, has remained largely unexploited.

This is primarily because both state governments and municipal corporations have not focused adequately on property tax reforms. State governments have long neglected tax reform measures that are key to rational property tax computation; such measures include reductions in stamp duty and amendments to rent control and municipal acts. CRISIL believes that municipal corporations have underestimated the importance of periodic tax rate revisions, efficient administration of tax, and transparency.

A clear focus on this tax source can yield immediate and far-reaching benefits. The CRISIL study demonstrates that collections through property tax can be increased enormously; CRISIL's estimates show that the collections through this route can be doubled, even quadrupled, without an increase in tax rates, solely through better administration. If used as an effective tool of revenue collection, property tax could possibly overtake octroi as the major source of revenue for municipal corporations.

According to Raman Uberoi, Director, CRISIL Ratings, "Proper exploitation of this source can lend substantial buoyancy and stability to the revenues of municipalities. This can therefore be the most efficient way for municipalities to improve their financial standing, and thereby strengthen their credit profiles."

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Property tax can be doubled, even quadrupled: CRISIL