An expert committee in the urban development ministry has recommended an increase in property taxes as a step to finance urban infrastructure during the 12th five-year Plan. A report by the committee has estimated Rs 40,000-50,000 crore would be required for over a period of less than 20 years.
The sub-committee on financing urban infrastructure for the 12th Plan has said the rise in property tax should be higher for properties given on rent, compared to self-occupied units to tap the increased rental value.
Revenue collections of the Bangalore City Corporation rose from Rs 400 crore in 2007-08 to Rs 1,200 crore in 2011-12 through an increase in property taxes. This needed to be emulated by other cities, the report said.
Reiterating the need for municipal bodies to raise revenue from own sources, the panel recommended the already existing, but not so popular, tool of ‘municipal bonds’ . It emphasised a number of regulatory, supply and demand-side constraints needed to be tackled to promote municipal borrowing as a significant source of funding local bodies.
So far, taxable municipal bonds have helped city governments raise Rs 445 crore from domestic capital markets, and this has been used to fund water and sewerage schemes or road projects. After Ahmedabad, other cities that accessed capital markets through municipal bonds without state government guarantees since 1998 include Nashik, Nagpur, Ludhiana, and Madurai.
Municipal bonds have played a key role in creating urban infrastructure assets in the United States and Canada. While municipal bonds form nearly 10 per cent of the debt market in the US, in India, only one per cent of the contribution by urban local bodies is funded by municipal bonds.
The report also talked of increasing the floor area ratio (FAR) and enhancing the charges for additional FAR. The Planning Commission had, in a recent report, recommended additional FAR for at least 50 per cent of the area rate.