Finance Commission for reforms in property tax regime

In a significant recommendation, the 14th Finance Commission has called for reforms in property tax regime by giving powers to panchyats and municipalities to levy the tax on plinth basis with a provision for periodic revision and minimising grant of exemptions.
"We suggest that the existing rules be reviewed and amplified to facilitate the levy of property tax and the granting of exemptions be minimised," the 14th Finance Commission said in the report, which has been accepted by the central government.
Property tax is a major source of revenue for local bodies the world over. But local bodies in a few states have not been given the powers to levy this tax so far. In some other states, the panchayats are unable to levy this tax because the necessary regulations have not been framed.

"In most states where tax is being levied, the rates have not been revised periodically. The list of taxable properties is not being updated and a large number of properties remain outside the tax net," it said.
Stating that tax levied on annual rental value basis leads to lower buoyancy, the Commission report said the revenues from property tax of 478 municipalities had risen from Rs 5,555 crore in 2007-08 to Rs 10,192 crore in 2012-13.
The per capita revenue from property tax varied from Rs 42 to Rs 1,677 across states.

The study of 478 municipalities has underlined that "the potential for collection of property tax has not been fully tapped and suggested that panchayats can raise much more revenues even at the modest rates applicable to the existing tax base," it said.

The Commission was in favour of states implementing property tax reforms including objective determination of the base and its regular revision to adjust for inflation, strengthening of mechanisms for assessment, levy and collection and improving billing and collection efficiency.
A review of state finance commission reports shows that states use different methods for the levy of property tax. "However, we have noted that there is a convergence of views in SFC reports that property tax should be levied on plinth area basis.
"We endorse the views of the SFCs that all the State Governments should empower the panchayats and municipalities to levy property tax on this basis," it said.

The Commission suggested that the existing rules be reviewed and amplified to facilitate the levy of property tax and the granting of exemptions be minimised.
"The assessment of properties may be done every four or five years and the urban local bodies should introduce the system of self-assessment," it said.