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Property Tax

Property Tax

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Published by Rohan R. Rao

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Published by: Rohan R. Rao on Jul 18, 2007
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03/30/2011

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 The property tax system adopted by BMC has always borne the stigmaof ambiguity and being unequal. In a bid to iron out the big disparity inproperty taxes in the city, the state government is in the offing tofinalize levy of property tax as per the market capital value basedsystem based on Ready Reckoner. Moreover, there can be a tax relief for Island city residents who may be exempted from new property taxsystem or there can be some concessions in property tax.P. S. Umberje, City Assessor and Collector, BMC says, “ The statecabinet has cleared the proposal to switch-over from the rateable valuesystem (based on the expected amount of rent of the propertyfetched in a given year) to market value based system which based onReady Reckoner rates. Now the bill will go before the state legislativeassembly in the monsoon session for final approval. Talks areforthcoming and there can some positive move in the month of July.”On the issue of tax exemption for residents of Island city, he reiterated,“ Certainly there will be some tax concessions for the island city underthe new property tax system for the residents of the island city.”
There will be an upper as well as lower ceiling on increase or decreaseof the tax. Accordingly the capital value tax will not increase morethan twice the rateable value tax and it will not decrease more than 50 per cent of the tax as per rateable value system. This ceiling will beinitially for five years only and thereafter it will be reviewed.In a study conducted by Tata Institute of Social Sciences (TISS) the new property tax system will improve the revenue and thus help inimproving the city’s infrastructure. Whereas the taxes would risesteeply in the island city for old buildings where the tax was based onthe rateable value, the new system will result in only a marginalincrease for the newer buildings in the suburbs.The ratable value system coupled with the Maharashtra rent controlact provides a cushion to age-old residential as well as commercial properties against a realistic hike in the property tax. Property tax under the ratable value system is calculated on the basis of the annualrent for the property in question.In Mumbai, all rental properties have the protection of the rent controlact, which has virtually frozen the rent to the 1940 levels or allowed a
 
maximum hike of 5 per cent effective from 2000. Since rent controlregulation has existed in Mumbai for around 65 years, actual rent israrely used as the basis for assessing property tax. Mostly, pre-1940rental levels or marginally increased rent are used to calculate tax. So,according to the existing ratable value system, the island city, which ishome to old properties, has to shell out a minimal property tax but thesame is exorbitantly high in suburbs.
It is a well known fact that an old residential building constructed inyear 1966 on Peddar Road has Municipal Tax of only 25 paise per Sq.Ft.where as a new residential building constructed around year 2002 ischarged 5 Rupees per Sq.Ft. Whereas, both the buildings enjoy samemunicipal facilities. A difference of almost 20 times leaves the gap thatmust be bridged. Further difference of property tax between an old 5star hotel at Lands end, Bandra, and new 5 star hotel just opposite it isalmost 10 times as old hotel was constructed more than 45 to 50 yearsago and new hotel was constructed not more than 7 years ago.
Ratable value system has always been a leeway for the older buildingsof the city. The rent control act protected them. However this reform islikely to balance the property taxes levied in the city and suburbsirrespective of the date of its construction. The capital value systemconsiders factors like current capital cost and life of the property, itslocation, quality of construction, and even cost of the living of theinhabitants. To determine the market value, tthe BMC plans to adopt the Stamp Duty Ready Reckoner rates with slight variations. Once themarket value is decided, this market value will remain constant for five years. On this market value a certain per cent will be charged as property tax for one year. The corporation will decide this rate of tax every year in its annual budget.But, the proposed Capital value system, even though irons out thecreases of inequity, doesn’t really offer a perfect and stable solution.The dynamism in the property tax system is perplexing. In the capitalvalue system, the tax will fluctuate according to the increase or decrease of market value of the property, whereas in the case of therateable value system, due to rent control act, the rent once fixed cannot be increased, hence the rateable value will always remainconstant.
Sunit Gupta, Stamp duty and market valuation expert says, “The newcapital value system is based on Stamp Duty Ready Reckoner issuedby Town Planning and Valuation Department of Government of Maharashtra. The Ready Reckoner itself is very controversial as it doesnot reflect the true market value of all the properties in Mumbai andshould be used only for stamp duty collection purposes and for no
 
other purposes. If Municipal Corporation wants to levy Municipal taxeson Market value of the property it should do an independent survey of various types of properties and arrive at just and fair market value of each individual property as is done in Canada. Resorting to Stamp DutyReady Reckoner blindly will lead to unfair taxation then is prevailingnow. Due to the Judgment of Supreme court regarding ending thedisparity in Municipal tax of old and new buildings, MunicipalCorporation of Greater Mumbai has proposed a new Capital ValueSystem of Property Tax and which was supposed to bring equality inproperty tax. However, under the new system there will be substantialrise in property taxes in island city of old buildings but in suburbs therewill be marginal rise in property taxes.”So to wipe up the inequity in the prevalent rateable value system, theCVS has been proposed. But the disparity is unlikely to be evened out.In the capital value system, the tax will fluctuate according to theincrease or decrease of market value of the property. Also the readyreckoner rates aren’t the true reflections of the ongoing market rates. The system will burden the old buildings and hence are being opposedby the older societies in the city.Property experts feel that since both the capital and ratable valuesystem are subject to fluctuations, the best method would be to switchto the unit-based system.In Delhi & Ahmedabad their exist a unit area method of property taxwhich is similar to capital value system and this is so simple that evena 10 year old child is able to calculate his property tax from thepublished guidelines, which is as simple as multiplying 5 to 6 factorslike age, location, type of use, occupation type, etc. Thus they haveachieved equality as well as transparency in the tax collection system,which our own Municipal Corporation is struggling to achieve.
 Advocate Divyakanth Mehta says “This transformation from a RateableValue Syatem to a Capital Value System should be more rationalized.The unit value system adopted by Delhi, Hyderabad, Patna and other cities would be the most appropriate solution. There must be an areawise assessment considering the actual land rates, the infrastructureand the amenities being provided and then the tax value should bedetermined. For example people in the suburbs, say for example,Kalyan and Dombivli are paying more property taxes than their counterparts in south Mumbai even though the latter enjoy better infrastructure and boast of escalating property rates. Changing over tounit value system will help to eliminate this existing discrepancy and attain a desirable transparency in the process and will make the people willingly file returns. Also the corporation will have rights to

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