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Property Tax

Property Tax. Presentation By Dr. J. M. Phatak Commissioner, Municipal Corporation of Greater Mumbai. Legal Provision.

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Property Tax

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  1. Property Tax Presentation By Dr. J. M. Phatak Commissioner, Municipal Corporation of Greater Mumbai

  2. Legal Provision • Bombay Provincial Municipal Corporation Act 1949, Section 127(1) Corporation shall impose Property Tax, 127(2) may impose (a) water tax, (b) conservancy tax, (c)general tax. • Mumbai Municipal Corporation Act 1888 – Taxation shall be imposed (1) property tax, (2) tax on vehicles and animals, (3) theatre tax and (4) octroi.

  3. Higher Tax on Land • Economist Henry George suggests higher tax on land instead of building. • Higher Tax on building encourages holding land unused or allowing buildings to deteriorate, a higher tax on land encourages efficient use of property. • More followed in Australia and New Zealand.

  4. Rateable Value based on Property Tax • Rateable value defined under the Rent Act is expected rent in the year of construction. • Thus old buildings have lower ratable value. • In municipal Corporations , there is no limit on the tax as percentage of rateable value. • In Mumbai residential, 83.5% with water meter 187.50% without water meter

  5. Rateable Value based on Property Tax (Contd.) • Municipal Councils – • A Class 23 – 28 % of rateable value B Class 22 – 27% of rateable value C Class 21 – 26% of rateable value • Village Panchayats 2 – 3 % of rateable value. • A plot of land of 100 sq.mt. in Haji Ali would attract Rs.84,717 on vacant land while Rs.1.44 lakh per year for metered non-residential property.

  6. Vacant plot in Haji Ali • Area 100 sq.m. • RLR( Residential Letting Rate)Rs. 94 per Sq. m. • Land rate 100 times RLR, Rs. 9400 per sq.m. • 100 sq.m. land Rs. 9.40 lacs • 12% of cost Gross Rateable Value Rs. 1.12 lacs • After deducting 10% statutory deduction Rs. 1,01520 • Property tax @83.5% Rs. 84,770 on vacant land

  7. Building at Haji Ali • Area 100 sq. m. • FSI 1.33, Buildable 133 sq m. • Residential Letting Rate per sq m. Rs. 940 per sq m. • Gross rent Rs. 12502 • After deducing 5% for water pump, lift etc. Rs. 11,877/- • Yearly rent Rs. 142524/- • Property tax Rs.107105/-

  8. British System • In 33 boroughs of Greater London, the property tax is based on rateable value. However, the Sterling Pound has not depreciated over the last 100 years like the Indian Rupee. So distortions have not taken place between older and newer buildings.

  9. Shift to Capital Value • Today in South Mumbai, the land values as well as the rentals are much higher than in the Suburbs. However, for self-occupied properties in older buildings, the rateable values are much lower. • Rent Control. • Shift to capital value is still under consideration of the legislature and should come up in the Nagpur session of the Maharashtra Assembly.

  10. Capital Value as the base • The American system • Capital Value is not totally without faults. As capital values jump, home owners with fixed income such as retired people discover with alarm that their annual property tax bills are rising sharply. This had resulted into tax revolt in US leading to proposition 13 in California. • Homestead exemptions rolling back property tax rates

  11. Objectives • To create a Property tax System which is • Transparent and Objective • Fair and Just for all Citizens

  12. Capital Value based Property Tax Tax is calculated by a simple formula Tax= r * Area * ( M.V. * U * C * A ) ‘M.V.’ = Market Value as per Stamp Duty Ready Reckoner ‘A’ = Age Factor ‘C’ = Construction Factor ‘U’ = User Factor ‘r’ = Tax Rate

  13. Impact of proposals Present V/s Proposed User-wise Rate Per SqMt Disclaimer: Tax rates and the factors chosen in this presentation are only suggestive and do not represent corporation’s final decision in the matter.

  14. Present vs. Proposed Demand-Collection Scenario Despite reduction in Demand, due to increased transparency- collection ratio will increase All figures in Rs. Crores

  15. Safeguards in the Proposed System • Safeguards for citizens against abnormal increase • Residential properties with area less than 500 Sq. Ft. will pay the existing tax in case of increase only • Increase in tax of other residential premises will be restricted to 2 times of existing tax • Increase in tax of non-residential premises will be restricted to 3 times of existing • Increase in tax for all properties after every 5 years limited to a maximum of 40% of the value prevailing at the time of revision

  16. General trend of capital value System City v/s Suburbs • All the old properties will attract increase in the tax Reason – Letting rates were very low • All the new properties around 1995 onwards will attract reduction in the tax Reason – Letting rates are very high • This trend will be common for entire Mumbai city irrespective of City & Suburbs Thus tax on city is not being increased to give relief to suburbs

  17. City

  18. Thank You

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