Finance Commission holds meeting with MoHUA on Property Taxation by ULBs

MoHUA recommends 4% increase of Devolution to Municipalities

The Fifteenth Finance Commission today held a meeting with Union Minister Shri Hardeep Singh Puri and senior officials of the Ministry of Housing & Urban Affairs (MoHUA) on issues including property taxation by Urban Local Bodies (ULBs).  This was in context with the Commission’s recommendations for 2020-21 which had mandated the States to notify floor rates of property tax and thereafter show consistent improvement in property tax collection in tandem with the growth rate of State’s own GSDP.

In view of the fiscal importance of this matter and especially in the current context of Covid-19 pandemic, the Commission had intense deliberations on this matter to help the States and ULBs in having an efficient property tax administration, and to address the rampant undervaluation, scarce information, incomplete property registers, policy inadequacy and ineffective administration, and rectify by appropriate fiscal cadastral with objective tax assessment systems that are progressive, buoyant and equitable to all.

The discussions in the meeting centered around creating an ‘enabling environment’ for ULBs to be placed in the driver’s seat with regard to property tax administration - to remove the duplication, overlapping or fragmentation of functions across different years of the Govt.  The focus was on making the ULBs responsible for collection of relevant data, valuation or assessment, setting tax rates, collecting tax and requisite oversight on all these aspects.

The Secretary, MoHUA, Shri Durga Shanker Mishra made a detailed presentation to the XVFC and submitted MoHUA’s revised memorandum to the Commission for the purpose of the XVFC Report 2020-2021 to 2025-2026.  The Ministry made a series of recommendations which include some non-financial as well as financial recommendations.

The Non-Financial Recommendations include:

• Change in mandatory conditions of property tax.
• Ambient air quality grant for cities to curb the sources of air pollution.
• Tied grants – for cities to take up work as per their requirement and priority,  including solid waste management, water supply, etc.
• Measures against Covid-19, including separate grants to ULBs for public health infrastructure, 9.4% of central taxes.
• Continuation of urban reforms like planned urbanization, setting up of regulatory board, auditing of accounts, etc.
• Catalytic interventions for financial sustainability in 86 city clusters which include 3331 cities across the country like implementing shared municipal services to improve delivery of citizen services and enhance revenue collection, etc.

The financial recommendations made by the Ministry to the Commission include:

• Bridging the resource gap of Municipalities – substantial increase in grants for municipal level resources and increase of devolution to Municipalities by atleast four times.
• Establishing a Programme Management Unit at MoHUA for better management of accounts at a cost of ₹ 213 crores.
• Building of institutional capacities at a cost of ₹ 450 crores.

Summing up, the Ministry has asked for:

• Increase in allocation to urban municipal bodies from ₹ 87,143 crore to ₹ 3,48,575 crore.
• Harmonization and integration of municipal accounts with State and Central accounts, funds required ₹ 213 crores.
• Own revenues enhancement, municipal borrowings and shared municipal services in 86 city clusters, funds required ₹ 450 crores.
• Separate grant for urban public health infrastructure to MoH&FW.
• Separate grant for regulation of million+citites ambient air quality to MoEF&CC.

The Ministry also informed the Commission about the setting up of a Consultative Group of Urban Development Ministers with regional representation from 6 States (Gujarat, Odisha, Tamil Nadu, Punjab, Tripura, Uttar Pradesh) has been constituted.  A Steering Committee of the Principal Secretaries (Urban Development) of these 6 States has been constituted for supporting the Consultative Group.  Janaagraha has been nominated for landscape study of Property Tax.  Best practices in laws, procedures and on-ground activities have been identified.

The Commission has assured to look into all the recommendations and issues of the Ministry while making the final recommendation to the Government in his Report 2020-2021 to 2025-2026.