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Vol. XXVIII No. 17, December 16-31, 2018

A mess: Property Tax and reciprocal services

by A Special Correspondent

The Property Tax and the services we get in return are in a mess. The tax revision after twenty years has brought many issues to the fore, above all, the issue of responsible governance. The T’Nagar Residents’ Welfare Association’s open letter to the Chief and Deputy Chief Ministers regarding the rise in Property Tax rates is symptomatic of citizens’ resentment across the State.

The Government has increased the rate for Chennai where it has remained unrevised for twenty years and for local body areas for ten years. The need for increase cannot be faulted, but it is the neglect to revise it periodically to match rising costs and the needs of expansion and modernisation that is condemnable. Ruling parties have been reluctant to raise rates lest they lose votes. It is the Court that had to intervene and force them to revise the rates, failing which civic services would have totally collapsed. Such gross governmental irresponsibility has led to poor upkeep of facilities and deterioration of services. Consequently, the revision now must pay not only for the increased cost of normal upkeep of services but capital costs needed to re-build and restore what had been left to crumble. The latter, with timely maintenance, would not have been necessary.

It is no wonder that there is an air of pessimism among citizens that even higher rates and larger revenues would not change present shoddy conditions. The poor state of services has been listed by T’Nagar citizens: Uncollected heaps of garbage, blocked sewer lines, dysfunctional stormwater drains, denial of platforms for exclusive use of pedestrians and crude road re-laying raising levels above plinth level of buildings. It is the lack of confidence in public agencies that makes people hesitate to pay a higher rate, knowing that it had not been revised for long and needs substantial increase. It is most important that the government regains people’s confidence by showing what it can do, now that it will have double the revenue with the new rates.

The affordability argument against rate increase is weak. The revised rates are hardly one per cent of the annual rental income to the owner at market rates. The tax is paid for essential services that we cannot do without; property also would not be worth much without them. Citizens understand this and have taken a constructive stand. They say: “we are, per se, not against the revision but that it should be … affordable commensurate with various services provided.”

The increase, however, should be examined on two aspects – one, the size of increase, over 100 per cent in many cases, and, two, the failure to phase a large increase, assuming it is justified.

First, the need for a “large increase”. The increase in revenue to the Corporation is estimated to be Rs. 580 crore, doubling the pre-revision amount. If the current increase recognises future inflation and obviates the need for revision for the next five years, the new rates in effect cover a span of 25 years – 20 years lost without revision and till next revision five years hence. Implicit in this is an approximate three per cent annual rise to cope with inflation. This is neither unreasonable nor avoidable. Looking at it from another angle, already at current rates, the shortfall of revenue against cost of services is as much as 40 per cent. If we do not pay for the full cost, we provide the civic agencies a good excuse for poor service.

But then, increasing the rate is less than half the battle. The problem is in timely collection. Collection efficiency in Chennai is as low as 75 per cent and 56 per cent in the districts. It means that in Chennai three assesses are paying for the fourth who is getting away with free service. In the districts, each property owner is paying for a free rider. To make up for lower collection efficiency, if rates are correspondingly increased, it is the honest payer that gets punished. Therefore, the system urgently needs forceful tax collection system. No system being beyond human ingenuity for abuse, it is ultimately for citizens to pay taxes promptly and then demand. As common services cannot be selectively withdrawn from those in arrears, those who don’t pay get a free ride from those who do. And when there are large arrears the higher rate is blunted in serving its purpose.

Second, the objection is that the government has gone back on the promise that increases would not be more than 50 per cent for residential and 100 per cent for commercial properties. Because of negligence, crossing these limits has become unavoidable for raising large enough revenue to meet costs. The dilemma could perhaps be resolved this way: Wherever the new tax amount exceeds the promised limit, adhere to the limit for the first period and raise the tax amount every year, automatically, by 10% till the amount applying the new rate is reached. Preferably, the raise by 10 per cent could be every half-year for speedier convergence with the new tax rates. This would atone for governmental lapse in not revising rates in time and, at the same time, address one main grievance of citizens. Similar smoothening is necessary to meet the concern of residents in areas that were recently added to the Corporation limit, exposing them overnight to higher zonal valuations.

The current rate structure seems to have too many provisos and rebates making it complex and giving room for malpractices. For residential property, for example, there need not be any distinction between self-occupancy and tenancy. The owner saves the rent or gets it from the tenant and so why should he pay differently if it is let out? People get around this by asking the tenant to tell the inspector that he is a member of the owner’s family. The meaningless distinction is needlessly irksome. Another complexity needing simplification is fixing the “basic street rate” street by street. There are about 3000 street rates per zone and there are 15 zones, totalling about 3040,000 basic street rates. Is such fineness necessary? Is it possible to capture such minute differences street by street with a view to fixing an equitable rate for each? There are enough relief provisions in the tax structure already by way of differential rates based on rental value and based on the type of construction to make the tax progressive.

Rising above all these is the concern that, with unplanned and unregulated growth of the City, facilities and services are deteriorating rapidly. Yet, taxes are payable, redressal mechanisms remote and our representatives, the Councillors are preoccupied with other pursuits. People are helpless without a prompt, sensitive grievance redressal mechanism.

Property Tax is different from many other means of public finance. When we pay Income Tax or GST, we render unto Caesar what is his, without being able to identify what Caesar does with what we pay. We do not perceive a directly relatable benefit for the tax paid. Not so, in the case of a levy like Property Tax. It is paid for a specific set of services and facilities. Unlike other levies, it has a quid pro quo implicit in it. While the contractual nature of this levy gives some hope of enforcement, in practice, neither individual property owners nor the Ward community can easily enforce return of proper value for the tax paid unless there is an effective umpiring mechanism. Governments should readily subject themselves to a high degree of accountability to tax payers and innovate the requisite procedures and institutions.

Doubling of revenue from the new rates leaves no excuse to the civic authorities for an immediate overhaul of infrastructure capacities and services. Having given all the money needed, we have every right to expect substantial improvements in the next few months. This should be watched.

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