Professional Documents
Culture Documents
2011
Spondored by: Mission Directorate,JnNURM Ministry of Urban Development (MoUD),
Jawaharlal Nehru National Urban Renewal Mission Regional Capacity Building Hub
Mission Directorate,JnNURM
Ministry of Urban Development (MoUD), Government of India, Nirman Bhavan, Maulana Azad Road, New Delhi 110 011 Prepared by:
Team Leader Prof. V. Srinivas Chary Editorial Advice, Guidance and Review Prof. D. Ravindra Prasad Prof. V. Srinivas Chary
Content Contributions
Mr. D V Rao Mr. Sreekanth Prof. D. Ravindra Prasad Prof. V. Srinivas Chary Prof. T. Murali Mohan Miss. Eshwari Alla Miss. Priyanka Kulkarni Peer Review: IDFC, New Delhi
COMPONENT BACKGROUND
INTENDED AUDIENCE(S)
LEARNING OBJECTIVES
DESCRIPTION JnNURM is a reform-led urban governance strengthening and improvement at ULB, parastatals and state government levels. Financial Management reforms, therefore, is the cornerstone and a necessary condition for investments in mission cities as well as across ULBs the states. The module addresses the training needs of all functionaries elected as well as appointed - at ULBs, parastatals and other related urban governance institutions and state government departments who are directly or indirectly involved in urban management. The primary aim of this module is to help the municipal functionaries to provide a larger understanding on financial management reforms including accounting, budgeting and resource mobilisation so that, in turn they become enabled to sustain the investments being made through JnNURM. It is also intended to develop a basic understanding of key issues and their prospective solutions. This module provides an overall understanding of the key aspects pertaining to municipal accounting and budgeting reforms, national municipal accounting manual, accrual based double entry accounting system, budget practices, means of resource mobilization and cost recovery and innovative illustrations through case studies. Awareness Overview of Knowledge Skills
Send your feedback on the material, how they can be improved to schary@asci.org.in Centre for Urban Governance, Administrative Staff College of India
Introduction to National Detailed Municipal Accounts understanding on Municipal Accounting Manual Double Entry Reforms, Step by Step approach of Accounting Budgeting Practices and implementing Double System to Entry Accounting System Cost Recovery Mechanisms Accounts Overview of Municipal Professional and Budgeting Practices other municipal Overview of Resource officials Mobilisation mechanisms and Cost Recovery Presentations using powerpoint, interaction, group discussion and peer learning to find out differences and issues pertaining to good urban management, site visits where necessary, exercises, etc.
1. Soft Copy of the Module in PDF Format 2. Power Point Presentations of Financial Management Module 3. Reference Material for Sub Modules
Contents
2.1 Municipal Accounting Reforms ...................................................................................... 12 2.1.1. Introduction ................................................................................................................ 12 2.1.1.1. Need for updating municipal accounts ............................................................... 12 2.1.1.2. Current scenario .................................................................................................. 12 2.1.1.3. Advantages of cash basis of accounting ............................................................. 13 2.1.1.4. Disadvantages of cash basis of accounting ......................................................... 13 2.1.1.5. Continuance of the system .................................................................................. 13 2.1.2. Accrual Based Double Entry Accounting System ..................................................... 13 2.1.2.1. The 74th Constitutional Amendment .................................................................. 13 2.1.2.2. Single entry Vs Double entry.............................................................................. 14 2.1.2.3. Advantages of double entry accounting system .................................................. 15 2.1.2.4. Accrual based accounting system ....................................................................... 16 2.1.2.5. Benefits of accrual based accounting system...................................................... 16 2.1.2.6. Cash basis Vs Accrual basis of accounting......................................................... 17 2.1.2.7. Fund basis of accounting .................................................................................... 17 2.1.3. National Municipal Accounts Manual (NMAM) ...................................................... 19 2.1.3.1. Government of India (GoI) Initiative ................................................................. 19 2.1.3.2. National Municipal Accounts Manual Chart of Accounts ............................... 19 2.1.3.3. Major Head Code ................................................................................................ 19 2.1.3.4. Minor Head Code................................................................................................ 20 2.1.3.5. Detailed Head Code ............................................................................................ 20 2.1.3.6. Main books of account ........................................................................................ 21 2.1.4. Municipal Financial Management ............................................................................. 23 2.1.4.1. Revenue Income.................................................................................................. 23 2.1.4.2. Revenue Expenditure .......................................................................................... 23 2.1.4.3. Liabilities ............................................................................................................ 23 2.1.4.4. Assets .................................................................................................................. 24 2.1.4.5. Reconciliations .................................................................................................... 24 2.1.4.6. Financial Statements ........................................................................................... 26 2.1.4.7. Trial Balance ....................................................................................................... 26 2.1.4.8. Income and Expenditure Account ....................................................................... 26 2.1.4.9. Balance Sheet ...................................................................................................... 27 2.1.4.10. Statement of Cash Flows .................................................................................. 27 Sub Module : 2.1 Municipal Accounting Reforms
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Module 2 Financial Management 2.1.4.11. Receipts and Payments Account ....................................................................... 27 2.1.4.12. Notes to Accounts ............................................................................................. 27 2.1.4.13. Financial Performance Indicators ..................................................................... 27 2.1.5. Guidelines for Preparation of Opening Balance Sheet .............................................. 28 2.1.5.1. Assets and Liabilities .......................................................................................... 28 2.1.5.2. Listing and valuing fixed assets .......................................................................... 28 2.1.5.3. Depreciation of Fixed Assets ............................................................................. 29 2.1.5.4. Listing current assets........................................................................................... 29 2.1.5.5. Listing Liabilities .............................................................................................. 29 2.1.5.6. Revision of Opening Balances ............................................................................ 29 2.1.5.7. Good Practices Accounting Reforms: .............................................................. 29 2.2. Municipal Budgeting ................................................................................................ 32 2.2.1. Introduction ................................................................................................................ 32 2.2.2. Key principles for development of a good municipal budget .................................... 33 2.2.3. Types of Budget ......................................................................................................... 33 2.2.3.1. Line-Item Budget ................................................................................................ 34 2.2.3.2. Performance Budget............................................................................................ 34 2.2.3.3. Program Budget .................................................................................................. 34 2.2.3.4. Zero-based Budgeting ......................................................................................... 35 2.2.3.5. Case Study: Zero Based Budgeting in Madurai .................................................. 35 2.2.3.6. Outcome Budget ................................................................................................. 36 2.2.3.7. Case Study: Outcome based Budget - Kolkata Municipal Corporation: ........... 37 2.2.3.8. Participatory Budgeting ...................................................................................... 38 2.2.4. Budget Classification ................................................................................................. 38 2.2.4.1. Expenditure ......................................................................................................... 38 2.2.5. Budget Preparation and Execution......................................................................... 40 2.2.6. Budget Preparation Process ....................................................................................... 41 2.2.6.1. Establishment of Objectives ............................................................................... 41 2.2.7. Calendar for Preparing Municipal budget.................................................................. 42 2.2.8. Budget Execution ....................................................................................................... 43 2.2.9. Budget Maintenance and Monitoring ........................................................................ 43 2.2.10. Budget Watch Register ............................................................................................ 43 2.2.11. Current Scenario in Municipal Budget .................................................................... 44 2.2.12. Budgeting in the New Accounting System .............................................................. 44 2.2.13. Components of Budget in the New Accounting System ......................................... 45 2.2.14. Budget Reports......................................................................................................... 46 Sub Module : 2.1 Municipal Accounting Reforms
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Module 2 Financial Management What is NEW in the new Budgeting System ............................................................... 47 2.2.15. Making Budgets Inclusive: ...................................................................................... 47 A Review of Internal Earmarking of Municipal Funds in the States:.............................. 48 2.2.16. Constitution of BSUP Fund: Some Experiences ..................................................... 49 Case 1: BSUP Fund in Hyderabad ................................................................................... 49 Case 2: Pro-Poor Budgeting (West Bengal model) ......................................................... 49 2.2.17. Gender Budgeting: ................................................................................................... 50 2.2.18. Case Study - Budget Procedures with Focus on External Oversight ....................... 51 The Way Forward ................................................................................................................ 53 2.3. Revenue Improvement and Cost Reduction ........................................................ 55 2.3. Revenue Improvement and Cost Reduction ..................................................................... 56 2.3.1. Municipal Finances in India....................................................................................... 56 2.3.2. Municipal Revenues: ................................................................................................. 56 2.3.3. Composition and Trends of Municipal Revenues ...................................................... 59 2.3.4. Municipal Expenditure............................................................................................... 59 2.3.5. Composition and Trends of Municipal Expenditure .................................................. 60 2.3.6. Property Tax............................................................................................................... 60 2.3.6.1. Property tax - local revenue ................................................................................ 61 2.3.6.2. Rental Value Basis of Property Taxation: .......................................................... 62 2.3.6.3. Capital Value Basis:............................................................................................ 63 2.3.6.4. Problems of current systems: .............................................................................. 64 2.3.6.5. Property Tax Reforms under JnNURM .............................................................. 64 2.3.6.6. Reforms in Rate and Base Structure: .................................................................. 65 2.3.6.7. Reforms in Valuation and Assessment: .............................................................. 65 Unit Area System: ............................................................................................................ 66 2.3.6.9. Enhancing Property Tax Coverage: .................................................................... 69 2.3.6.10. Property Enumeration and Mapping ................................................................. 70 2.3.6.11. Property Identification Code ............................................................................. 70 2.3.6.12. Records Management........................................................................................ 70 2.3.6.13. Public Information ............................................................................................ 70 2.3.6.14. Self-Assessment Scheme .................................................................................. 70 2.63.6.15. Service of notices/bills .................................................................................... 71 2.3.6.15. Indexation: ........................................................................................................ 72 2.3.6.16. Improving Property Tax Collection Mechanisms: ............................................ 72 2.3.6.17. Incentives and penalties: ................................................................................... 73 2.3.6.18. Partnerships with other agencies:...................................................................... 73 Sub Module : 2.1 Municipal Accounting Reforms
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Module 2 Financial Management 2.3.6.19. Monitoring and Enforcement: ........................................................................... 73 2.3.6.20. Citizen Interface Mechanisms: ......................................................................... 73 2.3.6.21. Grievance Redressal and Appeal: ..................................................................... 75 2.3.6.22. Training and Capacity building ........................................................................ 75 2.3.6.23. Recent Initiatives in Property Tax Reforms Case Studies ............................. 75 2.3.6.24. Good Practices practices in Self-assessment .................................................... 86 2.3.7. Other ULB Taxes: ...................................................................................................... 87 2.3.7.1. Vacant Land Tax: ................................................................................................ 87 2.3.7.2. Octroi: ................................................................................................................. 87 2.3.7.3. Advertisement Tax:............................................................................................. 88 2.3.7.4. Others: ................................................................................................................. 88 2.3.7.5. Advertisement Tax - Andhra Pradesh Experience: ............................................. 88 2.3.8. Non-Tax Revenues..................................................................................................... 90 2.3.9. User Charges .............................................................................................................. 90 2.3.9.1. Present Practices in User Charges: ..................................................................... 91 2.3.9.2. Mandatory reform under JnNURM .................................................................... 91 2.3.9.3. Tariff Setting: ...................................................................................................... 92 2.3.9.4. Tariff Policy Reform ........................................................................................... 94 2.3.9.5. Challenges to Achieve Full Cost Recovery ........................................................ 96 2.3.9.6. Preliminary Considerations ................................................................................. 97 2.3.9.7. Steps to implementing the reform ....................................................................... 99 2.3.9.8. Provisions for Water Charges in Andhra Pradesh ............................................ 100 2.3.10. Other Non Tax Revenues: ...................................................................................... 102 2.3.10.1. Fees from Markets and Slaughter Houses ...................................................... 102 2.3.10.2. Rent from shop rooms and buildings .............................................................. 103 2.3.10.4. Building permission fees................................................................................. 104 2.3.10.5. Trade licence fees ........................................................................................... 105 2.3.10.6. Encroachment fees .......................................................................................... 105 2.3.10.7. Parking fees ..................................................................................................... 106 2.3.10.8. Miscellaneous non-tax items........................................................................... 106 2.3.11. Duty on Transfer of Property ................................................................................. 107 2.3.12. Other Land-based Instruments of Cost Recovery .................................................. 109 a) Betterment levy .......................................................................................................... 109 b) Valorisation ............................................................................................................... 109 c) Impact fee ................................................................................................................. 109 d) Exactions .................................................................................................................. 110 Sub Module : 2.1 Municipal Accounting Reforms
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Module 2 Financial Management 2.3.13. Cost Reduction ....................................................................................................... 110 2.3.13.1. Public Private Partnerships: ............................................................................ 110 2.3.13.2. Energy Audit: .................................................................................................. 111 2.3.13.3. Case Studies Energy Audit .......................................................................... 112 2.3.13.4. Good Practices - Improved Cost Recovery ..................................................... 113
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Currently, municipal accounts are prepared on cash based system. Under this system, receipts and payments are recorded after they are actually received or paid in cash. It is a single entry system. All receipts and payments are classified into various heads of account and the closing balance at the year-end is arrived. The classification of transactions in municipal accounts has a closer reference to the functions, programmes and activities of the municipality. The classification of each item of receipt and payment has to be made according to the head of the account to which it relates. The adoption of cash basis owes its origin to the pre-eminence of budget as the principal means of financial control. A municipality, being a service oriented institution, needs to spend the monies received/raised only against planned expenditure. Further, its objective is not profitoriented and therefore nothing is mentioned about the performance or better utilization of resources and/or savings.
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The above system uses a single column, only the difference between receipt and payment is totalled - not the individual values of each. Knowing the individual total amounts of receipts and payments is important, for example, when formulating a budget. In the above example, the individual receipt and payment amounts can be determined only by sorting through the transactions and tabulating the receipts and payments totals separately. This process can be designed into the system by using a separate column for receipts and payments as demonstrated below: Separating Receipts and Payments Date Jan 1 Jan 2 Jan 4 Jan 11 Jan 21 Jan 31 Description Opening Balance Purchase of stationery Water charges received Shop room rent received Street lighting electricity bill Closing balance Amount (Rs.) Receipt Payment 1,000 150 275 125 50 1,200
The above example uses two columns. It still is considered to be a single entry system, since only one line is used to record each transaction. This single-entry system often is expanded to provide more useful information. For example, additional columns can be added to classify the receipts as taxes, fees, user charges etc. Some single-entry systems may add dozens of columns for different types of receipts and payments. Small enterprises can adopt such a system. It is not possible for a system which has large number of transactions. On the other hand, under the double entry system of accounting, every transaction has two sides debit and credit. For instance, if cash is paid for stationery, the transaction has resulted in depletion of cash (Cr) for the organisation due to expenditure on stationery (Dr). Likewise, if, for instance, a lessee pays shop room rent, the transaction has resulted in the increase in the
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A narration may be added to this journal entry to indicate that the receipt is from water charges. In this system, the double entries take the form of debits and credits, with debits in the left column and credits in the right. For each debit, there is an equal and opposite credit and the sum of all debits therefore must equal the sum of all credits.
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Accrual system has to be recorded through double entry system. In a double entry system of accounting, each transaction consists of two elements, a debit and a credit. Debits must always
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is
Two entries are made for each transaction in the books of account Income includes revenues actually received and receivable and expenditure includes both payments made or payable Income and expenditure account is confined to the year of accounting only and it will not include the items of income and expenditure relating to past or future years The difference between the two sides debit and credit will indicate the net surplus/deficit. The system shall, necessarily, have the Balance Sheet, ie statement of assets and liabilities.
The difference between the two sides receipt and payment will indicate the cash balance at the end of the period. The statement need not necessarily be accompanied by a statement of assets and liabilities
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The schedules to financial statements of ULB are drawn at Minor Head Codes of Account and hence this is a mandatory level of information.
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Journal book
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Ledger
2.
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A document prepared for recording transactions involving deposit of cash into bank, withdrawal of cash from bank or transfer of amount from one bank to another.
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All details regarding accounting principles, scheme of accounting the entries, accounting records and procedure, provisioning for doubtful recoveries, period-end procedure, writes-off and internal controls have been explained.
2.1.4.3. Liabilities
Liabilities are classified into the following 10 heads of account. 1) Municipal Fund
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2.1.4.4. Assets
Assets are classified into the following 14 heads of account a. Fixed assets b. Accumulated depreciation c. Capital works-in-progress d. Investments general fund e. Investments other funds f. Stock-in-hand g. Sundry debtors (receivables) h. Accumulated provisions against debtors (receivables) i. Pre-paid expenses j. Cash and bank balance k. Loans, advances and deposits l. Accumulated provisions against loans, advances and deposits m. Other assets n. Miscellaneous expenditure to be writte-off Details regarding the accounting procedure in respect of purchase/acquisition (including acquisition by way of gift/donation) and disposal of fixed assets are explained. Accounting for revaluation of the assets and depreciation on the fixed assets are also explained. The accounting principles, accounting records and procedures, period-end procedures and internal controls are also explained. Similarly, the details about investments, stores, leases and hire purchases are also explained.
2.1.4.5. Reconciliations
The ULB has to prepare periodic accounts at quarterly basis and this shall be in addition to the annual accounts. To facilitate the preparation of these accounts, it is necessary to carry out daily and monthly reconciliations and other accounting procedures. The procedures to be followed on daily, monthly, quarterly and annual basis are detailed.
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The financial performance indicators to be worked out are: 1. Income Ratios 2. Expense Ratios
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Later, after 1994, the same continued, with the municipalities paying. Finally, from 1998 onwards, the new system was operationalized. However, due to a number of reasons this effort could not be sustained. Chief among these were lack of involvement of consultants in the
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The Budget helps the ULB personnel to serve the citizens better while maintaining fiscal accountability. It also provides a framework for conducting the day to day operations of ULB. A good municipal budget is expected to play the following roles:
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Module 2 Financial Management (2) A management role in allocating resources to particular agencies/departments and
estimating the inputs personnel, equipment and money required to achieve specific outputs;
(3) A control role in giving authority to local officials to collect and spend money and in
prescribing who can spend how much and on what. In spite of the critical role that the budget plays, barring a few, there has not been any major attempt in the country to reform the municipal budgeting process. Majority of the municipalities follow complicated systems which have been continuing since the colonial times.
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7,50,000 47,50,000
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Both the performance and program budget use indicators to measure financial and operational performance, but the budgets have a different focus. A performance budget emphasizes management efficiency, whereas a program budget emphasizes the benefits that the local community gains from municipal expenditures.
Fund Based Budgeting. As for the legal provisions, The Kolkata Municipal Corporation (KMC) Act provides for fund based budgeting. It specifies that budget should be prepared in such a manner as to separately state the income and expenditure of the Corporation to be received and incurred in terms of the six accounts they are maintaining Water Supply, Sewerage & Drainage; Road Development & Maintenance; Bustee Services; Commercial Projects; Solid Waste Management and the General Head. It is noteworthy that the Act way back in 1980 had envisaged a system of Fund Based Budgeting.
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Based on recommendations of the Second SFC, Madurai Corporation has made attempts for participatory budget preparation based on the Brazilian model. Draft budgets are circulated free of cost to Ward Committees and put up on Notice Board of the Corporation for feedback. However, public participation is still not as forthcoming as envisaged and the Corporation needs to take additional steps in ensuring citizens
New Concepts in Perspective Budgeting: For the financial year (2006-2007) Madurai Corporation, as required by State directives, has prepared a biennial budget to allow for long term perspective planning and ensuring that ongoing major projects do not get stuck mid-way. The revised budget for 2006-07, along with modifications, if any, was to be presented during the next budget session. Tamil Nadu is the first state in the country to bring in the concept of biennial budgeting system. The biennial budgeting concept is a novel means of ensuring continuity of reform action, as well as perspective planning, though only mid-term and not longterm. Madurai Corporation, on the whole, has taken steps towards perspective budgeting, but is lacking in its ability to use budget analysis as a tool for effective decision making inspite of using the ZBB.
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2.2.4.1. Expenditure
The expenditure incurred by a Municipality can be broadly classified into (a) Revenue Expenditure and (b) Capital Expenditure.
2 3 4 5 6
Administrative Expenses Operations and Maintenance Interest and Finance Expenditure Programme Expenses Revenue Grants and Contribution.
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(a) Revenue Expenditure: Revenue expenditure can be defined as the outlay benefiting only the current year. It is treated as expenditure to be matched against revenue. The following are the broad categories of revenue expenditure. 1 Establishment Expenses
2.2.4.2. Receipts
The Receipts of a Municipality can be classified into (a) Revenue Receipts and (b) Capital Receipts. a. Revenue Receipts: The revenues drive the municipalitys operations. It generates the cash flow for the running the municipality and for the development works of the Municipality. The Municipality derives its revenue mainly from the following sources(i) tax revenues, (ii) non tax revenues, and (iii) grants. Tax Revenues: The tax revenues broadly include the following 1. Property tax 2. Profession tax Employees / Traders and Institutions 3. Advertisement tax 4. Entertainment tax 5. Timber tax The Revenue Officer of the municipality shall depending on the economic activities including the growth in real estate, the business environment and other relevant factors estimate the
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(2) Transparent and clear processes for within-year budget changes, such as revised
estimates, re-appropriations and supplementary estimates.
(3) Limiting changes in the budget, as a general rule, to those that could not be anticipated
during budget formulation and/or would have significant consequences if not addressed.
(5) Effective cash management to ensure that ULBs can provide cash when required to
execute the budget as passed.
(6) System for proper monitoring and recording of transactions so that excessive or
unauthorised expenditure is avoided.
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Although these have lent the needed flexibility in tracking and controlling the expenses / revenues overall and under a budgetary head, the budget is not, however, used as a tool for measuring and promoting accountability on part of service functionaries.
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Traditionally, the budgeting processes in the ULBs have been undertaken with the following: Income head-wise classification for receipts into ULBs, and Department-wise classification for payments out of ULBs
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In addition to the above, if the Municipality is preparing the budget field-wise, the summary of field-wise budget and the detailed field-wise budget shall also be prepared. Also the consolidated budget estimates shall be accompanied by the following subsidiary statements 7 Estimate of revenue income 8 9 Estimate of revenue expenditure Estimate of capital receipts
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There are two main aspects of this reform one, adoption of clear, affirmative policy of earmarking (allocating) certain quantum (%) of funds for urban poor and two, creation and operation of appropriate budgetary mechanism to ensure that funds allocated for urban poor get spent on urban poor. In response to this reform conditionality, states and ULBs have initiated processes (policy adoption) aimed at earmarking a certain percentage of the budget exclusively for the urban poor. For example, Gujarat state has adopted a policy for earmarking 20 percent of its budget for urban poor and has made it mandatory for ULBs in the state to earmark the same proportion of their budgets for provision of services to the urban poor. Andhra Pradesh State has given policy direction to municipal bodies to allocate 40% of total budget for provision of services to the urban poor. Though this is a step in the right direction it will be effective only when a appropriate budget restructuring is undertaken for actualising policy of internal earmarking of specific budget for providing services to urban poor.
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Under the suggested model, the Government of West Bengal had given an indicative list of poverty issues to be addressed by ULBs in annual development plan and to make provisions in the budget for improving quality of life of slum dwellers and the poor. The issues that may be considered by the ULBs relate to (1) Livelihoods, (2) Health, (3) Education, (4) Vulnerability, (5) Environment, (6) Civic Amenities, (7) Shelter, and (8) Food Security. Instructions are also given with respect to the basis of apportionment for sub-categories of services i.e., for each primary accounting code. The categories of services include: Civic Amenities o Water supply o Sewerage Health o Hospital services o Epidemic control Sanitation and solid waste management Public works o Roads and bridges Education o School buildings and other educational institutions construction and renovation o School equipment, furniture and tools and accessories Urban Forestry o Parks and gardens o Play grounds o Planning and regulation o Urban poverty alleviation and social welfare
For each of the above services it proposed to prepare expenditure estimates using apportionments, separately on both (a) Revenue account (b) Capital account. From this it was proposed to estimate the total budgetary estimate on service delivery for the urban poor on both revenue and capital accounts. Revised budgetary expenditure can be prepared thereafter based on the total budgetary expenditure arrived as above for the key services to the poor.
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Source: Reports of Eleventh and Twelfth Finance Commission, Economic Survey 2004-05 In terms of total expenditure, the municipal sector accounts for about 0.79 per cent of the GDP of the country. While, municipal expenditure accounts for little over 2 per cent of the combined expenditure of State and Central Governments, it declined further between 1999-2000 and 2001-2002. Table 1b presents an overview of the relative importance of municipal expenditure in relation to the expenditures of the States and Centre.
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Table 1: Revenue Sources of Urban Local Bodies in India Revenue Head Tax Revenue Sources of Revenue Property Tax, Octroi, Advertisement Tax, Tax on Animals, Vacant Land Tax, Tax on Carriages and Carts Non Tax Revenue User Charges, Municipal Fees, Sale and Hire Charges, Lease amounts Other Receipts Sundry receipts, law charges, costs recovered, lapsed deposits, fees, fines & forfeitures, rent on tools and plants, miscellaneous sales etc. Assigned (Shared) Entertainment tax, surcharge on stamp duty, profession tax, motor Revenue vehicles tax Grants in aid Plan Grants made available through planned transfers from upper tier of Government under various projects, programmes and schemes Non Plan Grants made available to compensate against the loss of income and some specific transfers Loans Loans borrowed by the local authorities in India HUDCO, LIC, State and Central governments, Banks and Municipal Bonds etc Table 2 sets out the major components of tax revenue of selected municipal corporations in India. While, property tax is the major revenue source in most of the municipal corporations, octroi is the major source in the municipal corporations of Maharashtra and Gujarat. Octroi has been abolished in all other States excepting Maharashtra and Gujarat. Table 3 illustrates the major user charges and fees levied by the select MCs in India. There is considerable heterogeneity in the levy of user charges by MCs across states. Table 2: Sources of Major Tax Revenues of selected Municipal Corporations in India State Andhra Pradesh Bihar Delhi Gujarat Karnataka Kerala Madhya Pradesh Municipal Corporation Hyderabad Patna Delhi Surat Bangalore Kochi Indore Major Taxes Property Tax, Profession Tax Property Tax, Profession Tax Property Tax, Advertisement Tax Property Tax, Octroi Property Tax, Advertisement Tax Property Tax, Profession Tax Property Tax, Advertisement Tax
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Table 3: Sources of Major User Charges and Fees of Selected Municipal Corporations in India 1998-2002 State Maharashtra West Bengal Andhra Pradesh Gujarat Karnataka Orissa Tamil Nadu Uttar Pradesh Municipal Corporation Greater Mumbai Kolkata Hyderabad Surat Bangalore Bhubaneswar Chennai Kanpur User Charge and Fees Water Charges, Sewerage Charges, Building Licence fees Planning fees, Car parking fees, mutation fees Dangerous and Offensive Trade Licence fees, market fees, slaughter house fees Water Charges, Building related fees, betterment charges Betterment charges, building licence fees, penalty for late tax payment Building Licence fees, market fees Building Licence fees, market fees, other licence fees, parking fees Building licence fees, market fees
Table 4: Sources of Shared Revenues of Selected Municipal Corporations in India State Maharashtra West Bengal Karnataka Gujarat Tamil Nadu Andhra Pradesh Municipal Corporation Greater Mumbai Kolkata Bangalore Surat Chennai Hyderabad Shared Municipal Taxes Non agricultural assessment tax, entertainment tax Motor Vehicles tax, entertainment tax Entertainment tax, surcharge on stamp duty Entertainment tax Surcharge on sales tax, duty on transfer of property, entertainment tax Surcharge on stamp duty, profession tax, entertainment tax
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Shared tax revenue, which varies in terms of composition and nature across states, also forms significant proportion of MC resources (Table 4). Entertainment tax is an important tax, not levied by the MCs, but collected and assigned to the MCs by State Governments. In Andhra Pradesh and Tamil Nadu, in addition to entertainment tax, profession tax and surcharge on stamp duty arealso assigned to local bodies.
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Other Expenditure
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The average shares of different components in aggregate expenditure during the period of 2000-04 are shown in Figure 3. Among all the components of municipal expenditure, the expenditures on capital works, establishment & administration, and operations & maintenance assume importance. The establishment & administrative expenditure constituted 36.25 per cent of the aggregate total expenditure, during 2000-2004. Capital expenditure, which is an important component, constituted less than 13 per cent of the total expenditure, during the same period.
In Government of India Act, 1935, the schedule of local taxes was deleted and local bodies were brought under the purview of the provinces. The Act brought in effective federal structure and provincial autonomy. While federal structure was governance at the centre and the provinces; provincial autonomy was more popular rule. The local governments tax powers and service functions were left to the provincial governments. The Act however permitted the provincial legislatures to allot at its discretion any of the provincial financial resources to the local bodies. The provincial legislatures were delegating the tax powers to local governments. With the advent of Independence, the Constitution of India, 1950 maintained the same federal structure with more or less the same powers and responsibilities to the Centre (earlier federal) and States (earlier provinces). List II of the Seventh Schedule of the Constitution, which lists the powers and responsibilities of the States contain local government under item 5, and taxes on lands and buildings under item 49. Under this provision, all States have created local governments including municipalities and delegated the taxing power on lands and buildings to such local governments. Thus the local finance today has drawn the framework from state governments. All states in the country have transferred the taxing power on lands and buildings (properties) to local governments. It is the responsibility of local governments to levy and collect property tax. No doubt, the 74th Amendment to the Constitution in 1992 brought constitutional status to municipalities, and made the municipalities as institutions of selfgovernment. Yet, the federal structure of the Constitution is not altered. The local governments including local taxation have remained state subjects.
Tax Base The valuation of land and building is the base for property tax. Capital value basis refers to the expected sale price or market value of the property, whereas, annual rental value basis refers to the rent the property would fetch for year to year The choice of property tax base be it annual rental value or capital value or standardised area base tends to relate more to social and political processes or concerns. While different countries adopt different base for property tax assessment, it has been observed that outside India, there is definite preference towards capital value base of property tax. A municipal body may select a particular base for property tax but it should also be kept in mind
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Table 9: Categorisation of Rented Buildings and ARV S.No 1 Classification of Rented Buildings Those for which fair rent has actually been fixed under Rent Control Act Those that are within the purview of Rent Control Act, but fair rent has not actually been fixed under the Act. Those that are outside the purview of the Rent Control Act. ARV ARV is the actual fair rent fixed under Rent Control Act ARV is the fair rent fixable under Rent Control Act
In respect of any building within the purview of Rent Control Act, the gross annual rent shall be the annual amount of fair rent fixed or fixable under the Rent Control Act. For the third category of buildings, ARV is based on the declared rent as evidenced by lease deeds or rental declarations of owner or tenant. Rent deeds often suppress actual rent paid with rent being collected in other forms like interest free deposits, undisclosed advances, partnership fees, charges for amenities and services. As regards owner occupied building, the rental value has to be fixed with reference to the prevailing rental values in the locality, and is generally an estimated hypothetical value. In addition, there are problems of assessing properties like educational and medical institutions, clubs and entertainment places, hotels and guest houses. In fixation of estimated rent, there is considerable discretion for the assessing authorities and estimated rents vary with different assessing authorities. Besides discretion and arbitrariness in estimating rental values, there is a considerable loss of revenue to ULBs.
The capital value based assessment is applied on the estimated market value or the current sale price of a property. Properties incapable of producing rent are to be taxed on cost or profit basis that resembles capital value. Some of the Municipal Acts have the provisions for capital value basis of taxation. The annual value is arrived at on the basis of estimated market value of land and cost of building at the time of construction or acquisition. Capital Value based system is most revenue productive system. The valuation of land and building can be undertaken separately allowing optimum use of land. Variation in value because of usage can be taken care of through rate differentials instead of multiplying or adding of the factor or scores. Capital Value based System, with proper safeguards help property tax systems to move away from the constraints of rent control. The system of assessment based on Capital Value has its own share of problems: In the absence of a free open market in land and property transactions, the purchase value of the property, particularly in metros, does not reflect the true use value of the property, but is more a speculative price.
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Municipal Valuation Committee: Whatever be the factors that are chosen for the classification, these must be clearly specified in the statute. Further, the process adopted should be objective, transparent and provide for a reasonable opportunity for the tax payers to file objections and be heard. To ensure this it is desirable that a Municipal Valuation Committee be appointed consisting of experts and persons experienced in urban administration, taxation, and representatives from the local body. The manner of constitution of this Committee, its functions, and the processes that will be adopted to ensure fair consultation with the citizens should be clearly laid down in the statute. (Since
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Unit Tax or Unit Annual Value: In a unit area system, one could either fix the tax per unit area for each group, as in the case of Ahmedabad and Patna. In this case: Tax = Unit Rate of Tax * Area. Alternatively, one can prescribe the annual value per unit area as in case of the Municipal Corporation of Delhi. In this case: Tax = URV * Rate of Tax * Area. The former has the advantage of being simple to understand and easy to apply. In the latter there is greater flexibility for raising and lowering the tax burden by simply adjusting the tax rate without altering the annual value. Another advantage is the scope for bringing in equity considerations into the tax structure by having a graduated rate of tax or different rates of tax for different types of properties. Owners with more built-up area or higher annual value can be taxed at a higher rate, or some lower cut-off covered area or annual value can be prescribed for levy of tax to give relief to poorer people. The annual value could also become the base for levying other taxes or user charges. Self-Assessment: In this system individual owners or any other person liable to pay property tax can easily determine their tax liability by calculating the tax as follows: Step 1: Note the base unit area value (per square feet, sq.ft. or square meter, sq.mtr) for the respective category of locality in which the property is. Step 2 Annual Value (AV) = Base unit area value (UAV) * Multiplicative factors (f1, f2, f3) etc.) * Covered Area (A) Step 3 In case the multiplicative factors for the different portions of the property are different then: Total AV = (AV of portion 1) + (AV of portion 2) + (AV of portion 3) + .
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Property Tax Revision: Assessments are to be revised once in five years. For various administrative and other reasons, revision of taxes is not being done regularly. It should be ensured that revision takes place regularly once in 5 years or as per the timeframe prescribed under law.
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Secondly, any levy of tax should be supported by legislation. It is therefore necessary that the reform should be supported by legal sanction. Legal process includes (a) amendment to the existing provision and making a provision that assessment of property tax is based on accepted parameters like location, nature of construction, usage of building, occupation and age of building etc. It is also necessary to de-link assessment with rent control law, (b) invoking secondary legislation, i.e., amendment of existing assessment rules or issuance of fresh rules and (c) issue of detailed administrative guidelines/ instructions.
Lack of an adequate database on the details of properties is one of the biggest deficiencies in most ULBs in India. Experience shows that the efforts towards improvement of the property tax base have always resulted in growth of tax revenues, even doubled in some of the cases. Improvements in tax base through periodic updating of property tax records should be given top priority by the ULB. The object of property tax coverage is to bring to book new properties into the tax net. Comprehensive and systematic coverage of properties undertaken periodically will bring in equity in tax administration. Coverage also represents the capturing of changes effected in old properties like additional construction, change of usage etc. Coverage is therefore one of the important measures in tax reform Two basic approaches can be used for this (a) self-declaration - where the tax payer is required to provide information; and (b) survey and inventory-where the taxing authority obtains information by field surveys. The information should include name and address of the owner, plot area, built-up area floor-wise, use to which property is put, the year of construction, the type of structure and details of assessment (if already assessed). It may be necessary to outsource this activity and engage a professional agency. Electronic database should be created from the updated property tax records. This field survey should be on a 100% basis and in subsequent years updated regularly through periodical surveys and inspections. To some extent, the system of self- declaration can be improved by penalties to induce compliance. To make the system more efficient it is necessary to supplement the self-declaration system by a complete property survey and mapping and a system of periodical field audits.
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It would be useful to introduce a unique number which would identify a particular property from the property database. This may be called the Property Identification Code (PIC). This code could locate the property uniquely in terms of ward, the colony and the block and perhaps floor or flat. The code so developed should be used by all the departments and other government agencies and form part of the statutory regulatory or revenue records. This would help in exchange of information by various authorities, both Central and state, and would help in preventing leakage of revenue. Necessary provisions should made in the Act for this purpose.
Changes in record management should be instituted to ensure the separation of records by area, co-ordination between valuations, an effective billing and collection process, improvement in record formatting and establishment of linkages among different departments through crossreferencing and computerisation of records.
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2.3.6.15. Indexation:
With a view to provide buoyancy, and to take into account the rapid developments and increase in real estate values taking place, revaluation (re-assessment) and change of classification should be done every three to five years. However, often such periodic assessments, even when legislated, are postponed. And when assessments are revised after a large gap of time there is great resistance from the property owners on account of the steep increase in the tax payable. To get over this a provision should be made in the statute for indexation of the assessment on an annual basis tied to changes in the Consumer Price Index of urban non-manual workers or such any other suitable index Which captures changes in real estate (rental) values. This will provide the requisite buoyancy in revenue on a regular basis.
The best way to begin administrative reforms is by improving collections (Dillinger 1988). Hyderabad and Ahmedabad Municipal Corporations (AMC) in India have brought significant enhancement in their property tax revenues through improved collection mechanisms during the last decade. This additional revenue gave them an opportunity to introduce reforms in property identification and assessment procedures. The AMC has gone a step further in accessing the domestic market by building its debt servicing capacity on the basis of improved tax collections. There are two ways to enhance collection. The first is through an innovative
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While most of the Acts have adequate provision for enforcement and collection of tax, the system in actual practice of monitoring tax returns and payment is woefully inadequate. Suitable strengthening of the enforcement processes and revenue intelligence mechanisms would yield higher realization of tax dues. A suitable system of incentives/disincentives to reward honest and prompt tax payers and penalize defaulters should be put in place. Any appeal to a higher Court of Law should be permitted only after the tax as assessed has been paid by the assessee, so that appeal is not used as mechanism for tax evasion or delay. Greater acceptance of reforms and better compliance can be accomplished by paying attention to the interface between the local administration and the citizen. Some areas are suggested below: Stakeholder Consultations: At every stage of consideration of the reforms and in the development and design of the new system, wide ranging consultations with all stakeholder groups is necessary to ensure that the reformed system meets the requirements of all groups, and is acceptable to them. The groups should include resident associations, market associations, groups of special users (eg, schools, hospitals), political leaders, media and officials implementing the system. Consensus Building: Once a system is designed getting necessary approvals at the municipal and government level, it would require a well thought out strategy for consensus building. Often resistance to change comes from officials, councillors and commercial property owners who have vested interests in the status quo. Formal presentations and informal consultations with opinion leaders and ways
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arrive at provisional rental values make a preliminary notification and call for objections/suggestions, and make final notification and publish it in newspapers and official gazette.
Public grievances specific to property tax administration include (a) objection/revision/appeal petitions in tax matters (b) transfer of title/change of ownership applications. In tax matters, ULBs are flooded with various kinds of court litigation, which need to be minimized to bring improvements in tax administration. Necessary precautions should be taken at the initial stages of making an assessment by following due process of law. At present in many municipalities considerable numbers of appeals are pending in Court and it takes a long time for settlement. With a formula based self- assessment system as proposed it is expected that such grievances will be substantially reduced. To get over teething problems in the first year of implementation of reforms it may be advisable to appoint an Anomalies and Hardship Committee to hear grievances, objections and make recommendations for improvements/modifications in the system. Further the Act could provide for the designation by government of an officer to be the Grievance Redressal officer who could be approached by any citizen aggrieved by an assessment order of the commissioner. With a view to ease and expedite the appeal process it is recommended that a Municipal Taxation Tribunal be constituted to hear appeals against levy or assessment of any tax under the amended system. Citizen Friendly Systems: The property tax system as well as any associated forms, educational materials, manuals, and the payment and information systems should be designed so that these are easily understood even by a lay person, is citizen friendly and can be easily used by the common citizen. This definitely helps in greater acceptability and better compliance.
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The Patna initiative during 1993 was local and through amendment of rules by the Corporation and it was not supported by any amendment to the Corporation Act. Secondly, the rental values were fixed on a thumb rule basis and no scientific exercise was made. However, the Act has been amended during 1996 and it was challenged in a court. The Hon Supreme Court upheld the amendment on the ground that the amendment was in the background of bringing in transparency in administration, and removal of harassment and official discretion. Case 2: Property Tax Reforms in ULBs of Andhra Pradesh Property tax is the main source of income to urban local bodies (ULBs) in Andhra Pradesh, and contributes about 20 percent of the total income of ULBs and about 50 percent of own revenues. Property tax is levied on all buildings and lands at a percentage of their Annual Rental Value (ARV). The components of property tax are (1) tax for general purpose, (2) water tax, (3) drainage tax, (4) lighting tax, and (5) conservancy tax. All ULBs levy property tax by a resolution of the council and the resolution specifies the rate of tax (percentage of Annual Rental Value i.e ARV) and the date from which tax is levied. Before
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Under the Municipal Acts (both municipalities and corporations prior to reform), the annual rental value (ARV) of lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year. However, in respect of a building, where fair rent has been fixed under Rent Control Act, the gross annual rent shall be the annual amount of the fair rent so fixed. In fixation of rent on the basis of hypothetical rent, i.e., the rent it would fetch in the open market, there used to be considerable discretion to the assessing authorities, resulting in large disparities in the amount of tax ending up in loss of revenue to municipality. In actual practice, it was difficult to arrive at a truly representative and accurate market rent, since rents for similarly placed buildings are themselves highly variable owing to various non-economic factors. It is this situation that has been the main cause for complaints of arbitrariness in the assessment of property tax and a demand for reform. The Government desired that the amount of discretion should be removed. Thereon, after intense consultations, it was decided in the year 1989 to introduce new method of assessment for taxation taking into consideration the measurable variables like (i) nature of construction of building, (ii) nature of usage of building, (iii) plinth area, (iv) location, and (v) age of building. To give effect to the above decision, municipal laws were amended in 1989. The objectives of the new method of assessment of property tax were: To evolve a scientific method in the assessment and levy of property tax incorporating the principles of equity, objectivity in fairness and simplicity. To fix the assessments uniformly for similar buildings used for similar purposes and situated in same locality. To reduce the element of discretion and to avoid arbitrariness in the assessment of tax. To simplify the procedure of assessment and to make it transparent. To de-link the Rent Control provisions from assessment of property tax.
Assessments of Taxes Rules were made on the basis of the above statutory provisions in 1990. The rules provide detailed procedure for determination of ARV and levy of property tax on buildings and lands. Location of building/Zoning The first step in the new system is to divide the entire municipal area into convenient territorial zones with reference to potential rental value for purposes of fixation of Annual Rental Value. As
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Availability of civic amenities like water supply, street lighting, roads and drains. Proximity to markets and shopping centers. Proximity to educational and medical institutions. Proximity to banks, postal services and public offices Proximity to factories and industrial areas, and Such other relevant factors
Classification of buildings After division of municipality into territorial zones, the buildings situated in each zone are classified into the following 6 categories
RCC Posh buildings. RCC Ordinary buildings. Madras terraced or jack arch roofed or stone slabs or slate roofed buildings. Mangalore tiled roofed or asbestos roofed or G.I. roofed buildings. Country tiled buildings. Huts.
Nature of use of buildings After classification of buildings based on type of construction, they will be further classified on the nature of use into the following 6 categories.
Fixation of Monthly Rental Values (MRV) The Commissioner shall conduct a sample survey of buildings and gather information relating to the prevailing rental values of various categories of buildings in various zones, and arrive at the average monthly rent per square meter of plinth area fixable for each category of building. After sample survey, the Commissioner prepares a notification containing division of the municipality into zones and the monthly rental values (MRVs) per square meter of plinth area for various categories of buildings in all zones. He publishes the notification in the District Gazette and the local newspapers as a Draft Notification and calls for objections and suggestions within 15 days from the date of publication of the draft notification. After due consideration of the objections and suggestions received from the public, the Commissioner issues a final notification (in Form A) dividing the town into various zones and
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RCC Posh
Huts
Allowances for repairs or on any other account The deductions allowed from the ARV attributable to the building in lieu of all allowances for repairs or on any other account are shown in Table 12. Table 12: Deductions by age of building S.No Age of the building 25 years and below Above 25 years and up to 40 years Above 40 years Owner occupied residential buildings Municipalities situated on the sea shore Deduction allowed 10% of ARV 20% of ARV 30% of ARV 40% of the ARV An additional 5% of ARV
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A. Residential B. Shops C. Public offices i) offices and banks ii) Hospitals, iii) Educational Instns. D. Commercial use i) Hotels, & Restaurants ii) Godowns E. Industrial use F. Cinema theatres
Vacant Land Tax: In respect of vacant lands, capital value of the land will be the basis for taxation. The capital value means the market value fixed by the Registration department for the purpose of registration. The property tax on vacant lands will be not more than 0.5% of the capital value of the land. Revision of Property Tax: Government issued instructions to all Municipalities to revise taxes under the new system with effect from 1.10.1993. All municipalities, under the leadership of respective Commissioners have revised the taxes. Orders of Andhra Pradesh High Court Certain Rate Payers Associations have filed Writ Petitions in the Hon High Court of Andhra Pradesh questioning the action of government and municipalities in introducing the new system of assessment of property tax and revision of taxes on the basis of new system. The High Court of Andhra Pradesh in their orders dated 29.12.1994 have upheld the action of Government in revising the taxes, but did not endorse the attempt to de-link annual rental value with rent control provisions, Orders of the Supreme Court Government made an appeal to the Hon Supreme Court on the orders of the High Court and the Supreme Court has allowed the appeal. As per the orders of the Supreme Court, adoption of fair rent determined or determinable under the provisions of Rent Control Act is not binding on the Commissioner and the provisions of Rent Control Act will not apply for fixation of ARV and to levy property tax. The Supreme Court also observed that the Act and Rules provided a complete code for assessment of property tax to be levied for buildings and lands. Impact The impact due to restructuring of property tax assessment is more pronounced in two areas: on the revenues of the municipality and tax payers acceptability. The revision resulted in increase of revenues under property tax from Rs.60.00 crores to Rs.95.00 crores in two years, a net increase of Rs.35 crores per annum, i.e., 58% the state w.e.f. from 1-10-1993. This is also reflected in increase of per capita income from Rs.45 to Rs.57 in. It is about 60% increase on residential assessments and about 90% increase on non-residential assessments The other advantage is the tax payers acceptability to the area based taxation. In spite of protests from the rate payers associations, the method, by and large, has become acceptable to the tax payers. Interestingly, the restructured model was upheld by the judiciary as well. The publication of rental values for various categories of properties based on use and location has brought more transparency into the tax administration.
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Case 3: Ahmedabad Municipal Corporation It is all-together a different model. The Bombay Provincial Municipal Corporations Act provides that the Corporation can levy property tax on buildings and lands annually at such rate per sq. m. of carpet area of the building. There is no rental value and rate of tax on rental value. The Corporation determines tax rates. For determining the tax rates, the buildings are classified into residential and non-residential. The Act prescribed minimum and maximum rates. While the minimum and maximum rates per sq. m. of carpet area for residential buildings are Rs.10 and Rs.40, the rates respectively for non-residential buildings are Rs.20 and Rs.80. The Ahmedabad Corporation however fixed a tax rate per sq. m. at Rs.10 for residential buildings and Rs.22 for non-residential buildings. Apart from residential and non-residential, 4 other factors are considered for fixing tax rate. The 4 factors are (i) location, (ii) age of building, (iii) type of building and (iv) occupation.
Age factor (F2): This factor is to provide depreciation and to fix lesser rate for aged building. The age of building is grouped into 4 bands, 10-20 years, 20-30 years, 30-40 years and above 40 years. The rate for each band is specified and decreases with age of building. Type of building (F3): The buildings are categorized into independent bungalows, row houses/tenements, apartments, buildings situated in village sites and buildings situated in slum areas. The tax rates for each of this description of buildings have been prescribed. Occupancy factor (F4): The occupant means the owner or tenant. If the occupant is tenant, the tax is two times of the rate.
This model has been introduced with effect from the year 2001-02
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Location factor (F1): The Corporation has been divided into 4 areas classified as A to D, and rates for each area are prescribed. The classification of the area is on the basis of market value of lands, the values of which are collected from the Stamps Department.
Location of the building: On the basis of market value of land, the city is divided into 6 zones, Zone A to Zone E. Type of construction: Depending on the cost of construction, the buildings are classified into 5 types. - RCC roof /Madras terrace roof buildings, where cost of construction exceeds Rs.250 per sq. ft. - RCC roof /Madras terrace roof buildings, where cost of construction ranges between Rs.150 and Rs.250 per sq. ft. - RCC roof /Madras terrace roof buildings, where cost of construction is lower than Rs.150 per sq. ft. - Tiles and sheets of all kinds - Thatched house/hut Age of the building (depreciation factor): Depreciation is provided on a graded basis ranging from 10% for buildings of less than 5 years old to 70% for buildings above 55 years old. Status (occupation factor): The buildings are further classified into tenanted or selfoccupied. If the building is self-occupied, a rebate of 50% of ratable value is provided
Separate rates of ratable values for residential and non-residential buildings have been set. The rates set are per sq. ft. of built up area per month and the annual rate is considered for 10 months rate for purposes of tax calculation. Self-occupied concession is limited only to residential buildings. The rates of ratable values for residential buildings are also shown in Table 13 in the following.
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4.00 2.00
3.50 1.75
3.00 1.50
2.50 1.25
1.60 0.80
1.40 0.70
3.50 1.75
3.00 1.50
2.50 1.25
2.00 1.00
1.20 0.60
1.00 0.50
3.00 2.50 2.00 1.60 1.00 0.80 1.50 1.25 1.00 0.80 0.50 0.40 Rs.0.40, subject to a minimum property tax of Rs.100
Case 5: Municipal Corporation of Bhopal Madhya Pradesh Municipal Corporation Act provides the impost of property tax on the basis of annual letting value of land and building. The rate of tax is on a graded basis ranging from 6% to 10%. Along with property tax, other taxes and cesses, such as water tax, lighting tax and fire tax; and sanitary cess are added on in the tax bill. In 1997, the Act has been amended. While retaining the basis of tax as annual letting value, the method of determining is detailed. The annual letting value of any land and building is determined on the basis of square foot of built up area of building after taking into consideration the location, purpose for which it is used, and quality of construction of the building. The municipal limits are classified into different zones and specific rules are provided for zoning of areas within the municipal limits. As regards location, buildings are classified based on whether it is located on the main road, main market or interior roads. Usage of buildings are classified as residential, commercial and industrial As regards the construction, they are classified as (i) RCC buildings, (ii) buildings with roof made out of sheet and other semi-pucca or (iii) kutcha.
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Case 6: Corporation of Thiruvananthapuram In Thiruvananthapuram, the basis of taxation is Annual Rental Value. The annual rental value, as usual, was determined on the basis of reasonably expected rent from month to month or year to year. This provision is changed recently. While retaining the rental value as the basis for property tax, the method of determining it is changed. It is determined on the basis of location and certain parameters of categories of buildings. The city is divided into 3 zones. As regards building, 2 categories are identified. They are (i) location and (ii) type of construction. Under each category, certain parameters have been identified. For each parameter, different attributes are identified and points are given for each attribute. Table 14 shows the classification. Table 14: Points for buildings based on its category, parameter and attributes S.No 1. Category of Parameter building Location (i) Access grading Attributes Points 9 8 7 6 5 4 3 2 1 10 9 8 7 6 5 4 3 2 1 10 9 8 7 6 5 1 10
50-100 meters 100-150 meters 150-250 meters 250-500 meters 500 meters 1 km 1 km 2 km 2 km 4 km 2. Type of (i) Flooring construction Granite Marble Spartec tiles Mosaic Red oxide Cement Earthen Concrete above 100 mm width
(ii) Roof
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- National highway - State highway - District road - Other PWD road - Corporation BT road - Corporation metalled road - Non metalled road - Passage/footpath No proper access from At road side
The points as detailed above with reference to various attributes of parameters and categories (of buildings) are totaled and are graded with reference to the total points. Based on the grades (with reference to total points), the monthly rentals are notified for the 3 zones. The rentals range from Rs.1 to Re.13 per sq. meter as per the Table below; and the rate of tax is 18% of the ARV so notified. Table 15 shows the classification.
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Self-assessment is made mandatory. If no return is filed, or the return is found incorrect, the Commissioner can assess the property to tax after necessary enquiry. If return is filed in time and tax is paid on the basis of the return, there is a rebate of 5% of tax. If the return is not filed, Commissioner may levy penalty of 50% of tax assessed. If there is willful incorrect filing or wrong return, Commissioner may levy penalty up to 2 times of difference of tax assessed and tax paid on the basis of return. Municipal Corporation of Bhopal There is a provision to file a return declaring the property particulars with reference to the attributes of the property as per the classification and calculating the tax. If on verification, the difference of tax assessed and tax declared exceeds 10%, there is a provision for penalty up to
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Non-residential properties (5 categories, where allowance for 25% built up area is permitted) Rental value (1) = built up area (75%)*rental rate fixed/sft/month*10 Rental value (2) = built up area (25%)*1/2 rental rate fixed/sft/month*10 Total rental value = (1) + (2) above; minus (-) depreciation Property tax= Total rental value*25%
2.3.7.2. Octroi:
In States where octroi, an entry tax on commodities, is still levied, it has been a great supplement, fetching between forty to fifty per cent of all municipal income. But this is a levy that states are finding extremely difficult to continue and are under tremendous pressure to abolish it. Its leakages, the traffic snarls that it causes at city entry points and its allegedly retrogressive nature are some of the factors contended against it. Several of them already have
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2.3.7.4. Others: Sub Module : 2.3. Revenue Improvement and Cost Reduction
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The other taxes that cities in several parts of the country raise, apart from a general tax on properties, are a sanitation tax, a water tax and a sewerage tax. The water charges in several cities are alternately levied as a user charge and are metered so as to charge as per use. Many others impose a water benefit tax for undertaking new water projects and a sewerage benefit tax for implementing fresh sewerage projects. An additional sanitation cess is levied on large properties such as hospitals and malls that require specialized service provision by the municipal body. A tree cess, fire cess and a street tax are also some of the other taxes available in certain States. The first is for the plantation and upkeep of trees, the second for maintaining fire services, purchase of fire tenders and equipment and the third for the maintenance and provision of roads.
Procedure for obtaining permission of Commissioner: Written permission from Commissioner is required for erection of any advertisement. Every Advertiser desiring to display in advertisement shall apply to the Commissioner in advance before the advertisement is to be displayed in an application. The Commissioner may disapprove of an advertisement, among others, on the ground that its contents or the manner of its display are indecent or otherwise offensive to good taste or public sentiment. The Commissioner informs the applicant about tax payable on the intended advertisement if he approves the advertisement. The original of the application would be returned on payment of tax with instructions to incorporate the permission number and date in the advertisements. The Commissioner do not grant permission if the advertisement tax is not paid in advance. Erection of Hoardings at specified places: Commissioner is competent to identify the places for erection of hoardings on municipal sites. He also fixes the number of hoardings to be allowed on private properties. : Leasing out the right to collect fees: Commissioner may lease out the right to collect fees in respect of use of the above hoardings; and the regulations of the Lease are a) b) c) d) e) f) g) h) The lease shall be through auction or by calling tenders. Registered Advertisement Agents are entitled to participate in the bid. The period of lease shall not exceed three years. The lessee is empowered to collect fees on advertisements as per the notification issued by the Municipality The lease has to be approved by the Municipal Council. The lessee shall pay one third of the lease amount as deposit The lease amount shall be paid once in six months in the months of April and October. The lessee shall enter into an agreement and it shall be registered.
Display of advertisements in cinema halls: Cinema halls have to obtain prior permission from the Commissioner for display of the following advertisements, i.e., (a) Slides, (b) Advertisements shorts, (c) Trailer Films Prohibition and regulation of advertisement tax: a) The Council is competent to issue a notification prohibiting erection of advertisements at heavy traffic points or important road junctions or public parks, places of worship, historical monuments and in purely residential localities. b) The Council is competent to non-prohibited areas. regulate the erection of advertisements in
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6.00 8.00
In regard to cost recovery for wastewater management, the general practice is to levy sewerage charges at a flat rate or as a percentage of monthly water charges. The percentage generally varies from 10% to 25% of the monthly water bill. In the case of solid waste management, a monthly flat tariff framework is generally practiced. Increasing block structures or Incremental Block Tariff, wherein the relative tariff increases as consumption increases, is generally followed for recovering water charges. In the case of urban transport, reducing block structures are prevalent, wherein the unit rate decreases with increases in the distance of travel.
The ULBs/parastatals managing the delivery of any urban service are required to revise user charges in such a manner that, the income from user charges of a particular service recovers the full cost of O&M of the service. This is one of the mandatory reforms to be implemented at the ULB level by all the Mission cities under JnNURM. The implementation of this reform is critical to achieve self sustainability of services and for improving financial strength of ULBs. While its implementation does not require any additional financial expenditure and legislative amendments, political will is the essential and key element. The objectives for this reform are (a) establishment of linkages between asset creation and asset management through a series of reforms for long-term project sustainability and (b) ensuring adequate funds to meet the deficiencies in urban infrastructural services. ULBs need to commit to implement the efficiency improvement plans resulting in the progressive achievement of full O&M cost recovery of municipal services. While planning to achieve the O&M cost recovery, ULBs should ensure that the present inefficiencies in the services are not passed on to the customer. ULBs also shall protect the interests of vulnerable groups through lifeline tariff mechanisms and cross subsidies. The efficiency improvement plans should focus on (i) increase in coverage of users, (ii) reduction in losses (both commercial
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Beside the above fundamental objectives, there are additional considerations involved in setting user charges, which are as follows: Resource conservation - User charges should serve the purpose of discouraging excessive or wasteful uses of public service, thus promoting the conservation of depleting resources. Acceptability - User charges have an inescapable political dimension. A successful user charge is one that is free from public criticism and not objectionable to political leaders. Simplicity, feasibility, and transparency - User charges should be simple and easy to understand for both users and ULB managers in order to avoid anomalies and disputes. Finally, there should be transparency in every aspect regarding the fixing, revision and implementation of user charges. Public disclosure is a key for ensuring transparency; the users should be provided with full information. Interest Groups Six interest groups are involved in taking decisions relating to user charges (Bahl and Linn, 1995). They are: Direct beneficiaries of a public service, would like to pay the least for the services consumed, provided they do not see a connection between the prices charged and the quality and quantity of services consumed. Those who are willing to support an efficient pricing strategy and even the crosssubsidisation of a service, which they themselves tend to consume more intensively than others. This group, generally, is small in a given context. The local politicians, tends to favour free provision of as many services as possible with government funding through budgetary means. This arrangement maximises their ability to provide patronage, at least as long as they have a say regarding where, to whom, or how the service is to be provided. The managers of public services, are likely to handle multiple and possibly conflicting objectives - to the extent that they are free from direct political pressure from either the beneficiaries or political actors. It is in their general interest to expand services as rapidly as possible in order to increase their influence, follow their political interest, and gain public approval. Higher-level organisations such as state and central government entities, frequently take interest in the prices ULBs charge for infrastructure services. International institutions that provide grants or loans and technical assistance to developing countries, have become an important part of the process of determining urban service charges in recent years. Institutional Arrangements The ways in which interest groups can influence the process of determining user charges depend on the institutional setting. One of the important factors which influences the structure and form of user charges is the fiscal relations between central, state and local governments. In
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General and Administrative Many utilities lack important internal controls, such as operating policies and procedures, as well as timely, accurate and transparent billing and accounts receivable records. Mismanagement of meter installation, maintenance, reading and billing and collection also contribute to inefficient operations. Government Relations
Many government offices do not fully understand the importance of FCR and how financially stable utilities can simultaneously increase service quality, extend coverage to the poor and promote customer satisfaction. With a better understanding of the benefits of FCR, governments are more likely to adopt, implement and enforce rationally based and fair water pricing tariff legislation.
Customer Relations
Users in the region too often assume quality water and wastewater services should be free or low-cost. Educating customers about the true costs of operating and maintaining quality water services is crucial for promoting FCR. Paying customers must understand that they are subsidizing illegal connections. Artificially low water bills may, in fact, serve as a disincentive for customers to pay, since they reinforce the notion that water services are low-cost commodities.
Adopt a National FCR Policy: Countries should consider adopting full cost recovery policies that address issues of affordability and extend access to the poor. Any adopted policy should include a reasonably detailed outline of costs to consider, including depreciation and cost of funding, when determining the revenues required to achieve FCR. Utilities should not follow these policies rigidly, since affordability concerns should be addressed in tariff setting (cross-subsidization), or if absolutely necessary, through specific government subsidization of connecting and possibly providing water to target lower income customers. Establish an Independent Regulatory Body: Given the difficulties many surveyed utilities face in obtaining tariff adjustments, an entity that is not subject to political pressure should be responsible for completing tariff reviews and adjustments. This entity should (1) provide the necessary expertise and authority to evaluate a utilitys financial performance, and (2) work to protect consumer interests and needs.
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Develop Quantitative Performance Targets: Regardless of whether or not a regulatory body is established, local governments should consider developing quantitative performance targets to evaluate utility performance. Performance indicators and ultimate targets should be realistic, achievable and understandable to all parties involved. Initially, since efficiency data on utility performance is limited, local governments could negotiate the indicators and targets with utilities and measure performance on a periodic basis (e.g., year-to-year). Over the longer term, the performance indicators could also be used to compare performance with other utilities.
Existing data, such as financial statements, could provide initial benchmarking information necessary for setting performance indicators. Utilities that achieve these performance indicators, in turn, should be rewarded with more autonomy, including offering bonuses for management and employees. Utility Level
Tariff Review Measures: When applying for a tariff review approved by local governments, utilities should address the concerns of both local governments and the public. The list below provides an illustrative menu of options for utilities to consider: Advocate Affordability and Tariff Increase Issues Together: Address issues of affordability in proposing the tariff increases. This strategy will address a primary concern of governments and councilors in granting a tariff increase. Analyze Unserved Population Rates: Consider conducting a survey on how much the unserved population has to pay for water. In areas where alternative sources of water are not available, the unserved often have to buy water from vendors and pay from 7 to 35 times more per cubic meter than those served with piped water. Arguably, if tariffs are increased, the utility will have the ability to expand service to the unserved. When resources are not available to conduct a survey, the utility may be able to rely on results from surveys conducted in other similarly situated towns. Examine Other Arguments to Support FCR Tariffs: Highlight backlogs in service delivery and the governments inability to fund the backlog, and explain how a tariff increase could address these financial shortcomings. While backlogs in service delivery can be construed as a weakness, it could also strengthen the argument for FCR tariffs. Express Tariff Increases in Easily Understandable Terms: Express the implication of the tariff increase in the usual terms (e.g., 20 percent increase, or 30 cents/cubic meter), as well as in new terms, such as cost per liter or kiloliter. Maintain Regular Communication with Local Government: Utilities should consider maintaining regular communication, written and/or verbal, with local governments on the status of water supply service and potential problems. When reporting financial information, for example, utilities must address concepts of depreciation and its importance in repayment of principal on loans, and the funding of additional capital projects from internally generated funds (e.g., asset replacement). Emphasize Strong Leadership and Management: Based on the survey findings, successful utilities depend on strong management and leadership (attitudes and professional background), which in turn require competitive recruitment, commensurate salaries and incentives (career path and planning incentive pay
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Develop Customer-Oriented Services: Utilities should consider emphasizing customer-oriented service strategies such as increase in no. of connections, billing and collection practices, improvement in metering etc. Establish a Medium-Term Business Plan: Successful utilities typically gauge their financial viability and improvement by developing and following a medium term business plan. To stay on track with the business plan, utilities should consider relying on accurate record keeping, accounting and IT, as well as careful analysis of capital investment. Including the ratemaking authorities in the business plan process will emphasize the importance of achieving FCR and may facilitate an increase in rates. Adopt Cost-Cutting Measures: To reduce costs, utilities should consider implementing strategies such as reduction in physical and other losses, power costs, personnel costs, chemical costs etc. Adopt Procedures to Promote Transparency: Transparent and independently verifiable information is critical to all stakeholders. For employees, this issue becomes even more important as the utilities adopt incentives. For investors, this (audited) information will reduce uncertainty and therefore the cost of financing and encourage increased investment. For ratepayers (customers), transparency and reliable information will facilitate efforts to increase tariffs to levels that are required to achieve FCR. For governments/regulators, accurate information provides a clear method for determining proper rates. It is critical that the parties responsible for taking the steps to attain transparency and independently verifiable information do not fear negative consequences in the short term.
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From Rs. 30/- to Rs.100/- per tap per month From Rs. 250/- to Rs. 700/- per tap per month From Rs. 2000/- to Rs. 10000/- per connection From Rs. 5000/-to Rs. 30000/- per connection From Rs. 8/- to Rs. 25/-(per Kilo Litre)
From Rs.60/- to Rs.90/- per tap per month Rs. 6,000/- per connection : Rs. 10,500/- per connection From Rs.12.50 to Rs.25.00 (per Kilo Litre)
a. The ULBs are realizing only 40% of the Operations & Maintenance cost of water supply from user charges, and there is a marked deficiency in the maintenance of water supply system. filteration plants, and pump sets. b. Pipe lines are not being replaced in several places though they outlived their utility. c. The ULBs have defaulted in paying electrical charges The Operation and maintenance costs of water supply should include 1. Salaries of waterworks staff 2. Electrical consumption charges
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Government have been issuing instructions to the municipalities and municipal corporations to revise water charges and make the water supply system self sufficient with the water charges and the response is under various levels of compliance. There is an immediate need to fix water charges in such a manner to enable ULBs to realise the Operation and Maintenance cost in full and to pay the interest on loans taken under water supply from the users of water supply for the following reasons:
o o
Security deposit to be paid before taking part in the auction Solvency certificate by an officer not below the rank of Tahsildar in case of landed property or by Commissioner in the case of house property in the town.
iv. Where the period of lease is one year, the lessee shall deposit one fourth of the lease amount. The balance of the lease amount shall be paid in equal monthly installments within a period of nine months commencing on the 1st April of every year. vi. The lease deed shall be executed and registered vii. If any installment due under the lease is not paid within one month, the Commissioner shall reports the matter to the Council which is competent to terminate the lease and order its management departmentally Auction of the leasehold right : After approval of draft notification by Council, it would be published in the District Gazette and in the newspaper for information of public. The Commissioner conducts the auction subject to the conditions stipulated in the sale notification. After completion of the auction, Commissioner places before the Council a list of bids received at
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2) The Council may also in exceptional circumstances and with prior sanction of Government renew the lease at a rate not less than 15% over the existing lease. 3) The Council with the prior sanction of Government or the Government may dispense with public auction and allot shop or shops to any institution on rent which shall not be less than that which the adjoining shops of the same or similar accommodation in similar circumstances usually fetch in public auction. 4) 15 percent of the shops and stalls shall be reserved for allotment to the members of scheduled castes without normal channel of public auction at 50% of the rent of adjacent shops or stalls leased out in public auction or Rs.2.50 per square foot whichever is less. For this purpose, the District Collector sponsors members belonging to SCs.
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1) The council may renew the lease for a period of three years at a time without conducting public auction, if the present lessee agrees to renew the lease in his favour at an amount which will be at 33 1/3 percent above the earlier rent or the prevailing market rental value of such shops whichever is high.
Government accorded permission to Councils (Andhra Pradesh model) for construction of shopping complexes in vacant lands with good-will amount raised through public auction and leasing them out on monthly rental basis. For this purpose, the Council fixes a reasonable lease period, normally five years, and monthly rent and put to public auction the amount of nonrefundable deposit amount (goodwill). The bids at the public auction shall be placed before the Council for acceptance of the highest bid. Prior sanction of the Government sanction has to be obtained for construction of shop rooms on goodwill auction. The goodwill amount has to be collected in four convenient installments. The other general conditions for lease of shop rooms shall apply in the case of the shop rooms constructed on goodwill basis. In respect of shop rooms which have already been constructed, they can also be leased out on goodwill basis. In this case also, the Council will fix a reasonable lease period (generally five years) and monthly rent and put to public auction the amount of non refundable deposit (goodwill). After due publicity, public auction will be conducted by the Commissioner. The bids at the public auction will be placed before the Council. Ordinarily, the Council will accept the highest bid.
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Authority for levy of Surcharge on Transfer Duty Section 69 of Andhra Pradesh Panchayat Raj Act, 1994 Section 120 of Andhra Pradesh Municipalities Act, 1965 Section 110 A of Madras District Boards Act, 1920.
Zilla Parishad Areas in Andhra area (NonPanchayat and Non-Municipal) Zilla Parishad Areas in Telangana area (Non Panchayat and NonMunicipal) Municipal Corporation of Hyderabad Secunderabad Cantonment
5%
Nil
Nil
Section 261 of the Hyderabad Municipal Corporation Act, 1955 Section 60 of Cantonment Act, 1924
5%
5%
The classes of instruments on which duty is leviable are as follows: Municipal Corporation of Hyderabad Secunderabad Cantonment Gram Panchayats and Municipal areas & ZP area in Andhra region Sale, Exchange, Gift, Mortgage (with possession) of immovable properties. Sale, Gift & Mortgage (with possession) of immovable properties. Sale, Exchange, Gift, Mortgage (with possession) and perpetual leases of immovable properties.
Procedure for collection: In the Municipal Corporation of Hyderabad and in Secunderabad Cantonment, the duty is collected in cash by the Registration Officer at the time of registration and remitted to the credit of the Corporation or Cantonment as the case may be on the following working day, deducting 5% towards collection charges. In rest of the areas, it is collected by means of stamps. The Registration Officer allocates the duty to the local authority concerned in the ledger and a quarterly statement is sent to the District Registrar concerned, who authorizes the Treasury for payment to the respective local bodies deducting 5% towards the collection charges for the Registration and Stamps Department. The duty collected on behalf of Gram Panchayats should be allocated to the said Panchayat, Panchayat Samithi and Zilla Parishad in the ratio of 3:1:1 vide Rule 7 of A.P Gram Panchayats (Duty on Transfer of property) Rules, 1965.
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a) Betterment levy
Betterment levy is intended to recover the cost in the provision or improvement of infrastructure. Under this instrument the full cost should be recovered on the basis of unit area rates fixed on the grounds of size, structure, location and use. This instrument should be applied for the improvements taken up at a large number of unauthorised properties. This is widely used in the countries of Latin America and South East Asia.
b) Valorisation
Valorisation is used to recover partial increase in the land values as a result of public investment. The determination of valorisation charges is done in the same manner as in the case of betterment levy. However, it requires perfect information of the real estate market. This may be used for areas taken up under environmental improvement such as flyovers, bridges infra-city-expressways to reduce congestion, air pollution, noise pollution, road accidents, etc. This is used by cities in Latin America and the United States.
c) Impact fee
Impact fee is used by cities in the United States to recover the additional burden on existing municipal infrastructure and to provide for future infrastructure resulting from new development. The impact fee can be used to recover costs for schools, police, library, fire service, water, streets, highways and other services. It is to be charged on new developments in such areas which are already occupied, for example, vacant plot or changes in the Floor Space Index (FSI). This has to be recovered from the developer and should be linked with the development permission itself.
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The first objective of PPP is to improve the efficiency of ULBs in capital utilisation and service operations. The second objective is to inject large-scale investment into the urban infrastructure and service sectors through tapping capital markets. Another objective is to introduce technical and managerial expertise and state-of-the-art technologies into the sector. Since demand for urban infrastructure is highly differentiated by time, purpose, price and quality, in contrast to the uniform supply that characterises most government services, success of private sector participation will depend on its capability to capitalise on the diverse customer base and differential demand for urban services. Table 1: Function-wise Issues and Need for Partnerships Function Issues Need for Privatisation Municipal Roads and Huge backing Insufficient institutional and street lighting financial capacity Lack of funds for investment Roads linked to human health, environment, congestion/noise Insignificant recovery pollution and quality of life Declining O&M levels
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Traditionally, PPP is understood as a concept, which involves the public and private sectors working in co-operation and partnership to provide infrastructure and services. It is one of a range of alternative structures that fall between conventional procurement through public ownership and full privatisation. Instead of the public sector procuring a capital asset by paying for it in full up front, the effect of a typical PPP structure is usually to develop a single standalone business, financed and operated by the private sector.
Sanitation Poor coverage of sanitation wide-gap Poor maintenance Poor recovery Almost nil treatment safe Solid Waste Management Community Services, community centres, buses, bus stops, parking places, market places, shopping centres Low collection ratio Almost insignificant treatment Lack of municipal staff Abnormally low recovery Wide gap Limited resources (both physical and financial) Declining Maintenance of assets
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(A) National BANGALORE - Karnataka The Bangalore Water Supply and Sewerage Board (BWSSB) responsible for the supply of drinking water, conveying, treating and disposal of sewage to the silicon valley of India Bangalore city, has achieved 99% bill collection efficiency with the adoption o f latest technologies. The board had successfully leveraged Information Technology for the last five years such as implementation of SCADA and Telemetry, developing Geographic Information System (GIS) of Water Supply pipelines and Sewerage lines of the entire city, maintenance and updating of the same by an independent management system, Computerization of Revenue Billing and Collection, spot billing system with hand held computers, Payment of Water Bills through unmanned KIOSK working 24 x 7 hours, Water Auditing to control Leaks, computerized and consolidated all accounts in Central Office, usage of LAN-WAN to facilitate transfer of data pertaining to revenue billing, connections to the poor through effective communication strategy. These initiatives resulted in significant cost savings and also enhanced the bill collection efficiency to 99%.
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NAGPUR - Maharashtra Developing Innovative Measures to Reduce Unaccounted for Water As part of its effort to achieve cost recovery, Nagpur Municipal Corporation (NMC) has developed several innovative measures to reduce unaccounted for water. Motivated by the requirement to augment revenues, NMC came out with innovative idea of unearthing illegal water connections by using the same plumbers who fixed these in the first place. The corporation declared a time-bound programme aimed both at regularizing illegal water connections and also applying a universal metering policy. The incentive of Rs 100 for every illegal connection motivated about 200 plumbers. With insignificant expenses of about Rs 0.2 million as incentives for plumbers and a minimum amount spent on publicity drive, the programme achieved regularization of about 25,000 (71%) connections within a short period of four months. There was significant and evident increase in revenue generation. The simplified and rationalized procedures, transparency, accountability of the corporation and the participatory mechanisms adopted have generated enormous citizen co-operation and revenue to the corporation. MUMBAI - Maharashtra Policies for Achieving Full Cost Recovery Brihan Mumbai Municipal corporation has implemented a variety of strategies to achieve cost recovery, including targeted efforts to reduce non-revenue water by adopting various water conservation measures, strong management policies governing operations and maintenance, strong accounting and financial statements and public outreach programs to stay informed of both community and business needs. The corporation has also adjusted the tariff structure in order to meet the rising cost of water provision, although it retains the historically complex pricing regime. Since 1995 -1996, the total revenue income has doubled while the expenditure has increased by 1.5 times. In order to improve the cost of recovery (today: 80%), the centralized computerized billing is being decentralized at the ward level. These measures ultimately increased transparency and accountability of the corporation to their customers. ANDHRA PRADESH The Social / Affordability Dimension of Full Cost Pricing Compared to other cities, Indian cities do not enjoy high levels of access to both water supply and sanitation. Central to the issue of affordability are high connection charges and low willingness to pay for water services. Connection charges often represent the greatest barrier to affordability of water services for the unconnected poor, while customer willingness to pay remains low in areas with intermittent water supply and poor water quality. To tackle these affordability issues, the government of Andhra Pradesh decided to extend individual connection to BPL families at Rs.1200 with the option to pay the cost in twelve equal installments. About one lakh eligible BPL households applied for individual connections under the scheme and over two-thirds of the applications were sanctioned by the local bodies and four-fifth got installed.
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