Upgradation of Revenue

income of ULB (Pune City)

INTRODUCTION
Pune has emerged as a prominent location for
manufacturing industries, and has now been recognized
as the information technology hub and education hub of
the country. The city is spread over an area of 250.56 Sq.
Km with a population of over 3 million. Therapid growth of
the city has transformed from its character as Pensioner’s
city to Educational –Administrative Centreand now to a
bustling economic centre. The city is famous as the Oxford
of the East and the cultural capital of Maharashtra. Pune
is also one of the most favouredplaces among tourists
coming to Maharashtra. The educational institutions,
presence of a number of industries and branches of
virtually every array have made Pune a prosperous city.

Municipal finance is directly correlated with the economic

growth of a city, contributes to fulfilling the targets of urban
policy and planning agendas, and is responsible for
municipal-service delivery. Municipal bodies being the
powerhouses of growing economies, it is essential to keep
their engines well-oiled. Indeed, India’s long-term
economic prosperity will depend largely on how its cities
perform.

Municipal bodies are local self-governments whose

mandate includes the provision of basic services such as
healthcare, water supply, educational institutions, housing,
transport and waste management. Historically, Indian
municipalities have suffered from weak fiscal capacity,
relying heavily on state contributions to finance their
budgets. They are authorised to collect various taxes, e.g.
those levied on property, entertainment, advertisements
through hoardings and billboards, and articles entering the
region (octroi duty or entry tax). These taxes ensure that
ULBs practice a certain degree of financial autonomy.With
the introduction of the Goods and Services Tax (GST) in
2017, this autonomy has been restricted. Several taxes
have been subsumed under the GST.

Urban Local Bodies

Pune stands out as shining example since its
revenue surplus rose by over 18% in FY16 to touch
R2,000 crore—the operating surplus in that year was
50% of operating income; as compared to this, the
ULB’s debt was a mere R122 crore. PMC’s own-
revenue-to-total-revenue-income ratio stood at a 88%
on average in FY15 and FY16 while property tax
collections and local body tax, as an Ind-Ra analysis
shows, grew at a CAGR of 10% and 7.7%,
respectively, over FY12-FY16. The Fourteenth
Finance Commission (FFC) found that the per capita
revenue from property taxes are as low as R1,680,
falling to even R40 in many cases. Add to this, the
populist propensity to keep user charges for most
ULB-run facilities and utilities low, and it is not
surprising the own-revenue of most city governments
are marginal. Right now, while OECD countries
manage to average property tax collections of around
1.9% of GDP, India’s is a much lower 0.2%. The
Economic Survey quotes a study for Bengaluru and
Jaipur that estimates how much more taxes could be
collected. Using satellite data it found nearly half of
Bengaluru was built-upon and, once this was super-
imposed on circle rates in each area, the study found
Bengaluru could collect four to seven times its
current property taxes. In the case of Jaipur, where
39% of area was built-up, collection levels could rise
by between 10 and 20 times. Based on a similar
assessment of 36 cities, the Thirteenth Finance
Commission had found increasing property tax
compliance to even 80-85% would raise the property
tax revenues from R4,400 crore to as much as
R22,000 crore. Given 40% of India’s population could
be in urban areas by 2030, it is critical ULBs get their
act together at the earliest.

Revenue Collection in Maharashtra

According to a news report, Maharashtra recorded a

26-percent jump in revenue collection from GST in
2017–18. The state received INR 1,140,000 million in
revenue from taxes. This increase should be shared
with the ULBs as a fixed amount transferred on the
basis of a mutually agreed-upon percentage. This
idea was also mooted by the Union Ministry of Urban
Development in 2015, when the GST was being
formulated. The ministry had suggested that 25–30
percent of the state’s share of GST be given to the
municipal bodies. This was to compensate for the
losses that they were bound to suffer because of the
GST regime. However, this suggestion was not
factored in when the GST Act was finalised. Since no
devolution formula was part of the Act, it resulted in a
loss of revenue by removing an important tax like
octroi and not compensating the ULBs adequately.

For other municipal bodies in the states of

Maharashtra, the Local Body Tax (LBT) was a major
source of revenue, superseding the octroi and cess
 system of taxation. Local civic bodies of India would
impose the LBT on the entry of goods into a local
area for consumption, use or sale therein. The LBT
has now been discontinued, and most state indirect
tax levies such as VAT, CST and entry tax have been
subsumed under the GST, as listed earlier.

The heterogeneity among the ULBs in Maharashtra

begins from the variety of Acts that govern. Unlike
other States, where all the ULBs are governed by an
uniform act, ULBs in Maharashtra are governed by
the following four Acts:

1. Bombay Municipal Corporation Act, 1888,

2. City of Nagpur Corporation Act, 1948,
3. Bombay Provincial Municipal Corporations Act,
1949,
4. Maharashtra Municipal Councils, Nagar
Panchayats and Industrial Townships Act, 1965.

Past Financial Perfomance

A study of the financial performance of 15 municipal
corporations and municipalities (Urban local bodies:
ULBs) for the period 2004-09 shows that:

a. Revenue growth has been buoyant over the years.

However, the pace of increase in expenditure too
has risen commensurately on account of the
increased quantum of activity undertaken by these
ULBs. There has been a shift to greater
dependence on non-tax revenue and grants, which
is a concern as these flows are not endogenous to
the system being affected by external factors.
Revenue expenditure has been mainly on both
 operations and maintenance as well as
establishment expenditure.

b. The ULBs have been successful in maintaining a

revenue surplus with 13 of them having a surplus
in FY09. Given the deteriorating state of the
economy in general, this is commendable.

c. Capital expenditure of ULBs has increased

especially after FY08 leading also to pressure on
the capital deficit. Relative to revenue deficit, a
larger number of ULBs had capital deficits,
reflecting hence the prospective need to raise
more funds to finance.

d. The debt position of ULBs is fairly stable and with

the DSCR ratio being comfortable for a sub-
sample of ULBs, there is scope for raising funds in
the market.

e. It would be desirable for ULBs to get into the

process of monitoring their own performance in
terms of net surpluses or deficits on a regular
basis to prepare for raising funds in the market.
Such a regular appraisal would be necessary in
order to ensure that there is financial discipline that
is retained as they carry on with their regular
business. Obtaining credit rating would be a step
in this direction as it would help provide such
guidance that will in turn also provide comfort to
the market which would evaluate them when funds
have to be raised.
Revenues of ULBs
Revenues of ULBs can be broadly classified as
revenues from own sources and those from external
sources, such as grants from the State and loans.
Again, own sources of revenues can be categorized
as tax revenues and non tax revenues. There are
specific provisions in the State Acts, regarding
taxation powers of the ULBs. Article 243X of the
Constitution, inserted after the 74th Constitutional
Amendment Act (CAA) envisages, that States should
devolve additional taxation powers to ULBs, so as to
make them financially competent for discharging the
added functional responsibilities, mandated by the
succeeding Article 243W. However, in Maharashtra,
there has been no such devolution of taxation
powers, which would have been expected since it
would have been in consonance with the process of
decentralization. Instead, we have seen that taxation
powers of small ULBs regarding octroi have been
withdrawn by the State in March 1999. Hence, the
taxation powers of the ULBs are limited to its
traditional sphere and have not gone beyond various
existing provisions in the State Acts. Section 139 of
the BMC Act 1888, Section 127 of the BPMC Act
1949 and Section 108 of the Councils Act 1965,
provides taxation powers of the ULBs regarding
various items.Further, even within this list there are
provisions in the State Acts that further reduce the
flexibility of the ULBs. This can be illustrated by
property tax, where Municipal Corporations (MCs) in
Maharashtra can levy property tax as a percentage of
annual ratable value of the property, and ceilings for
such percentages are laid down by different State
Acts.
Revenue Income of Pune Municipal
Corporation