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CVS - return to Inspector Raaj

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When a tax computation system changes, citizens are naturally apprehensive. This is currently the case with the proposed introduction of Capital Value Scheme (CVS) for property tax in Bangalore as mandated in the Karnataka Municipal Corporations Act. This changes the widely welcomed Self Assessment Scheme (SAS) that has been in operation since 2000.

All taxations schemes need a method of computation. Under CVS, the method of tax computation is capital value instead of annual rental value under Self Assessment Scheme (SAS). This is fine in principle and most economists favour capital value as a buoyant property tax system. How this plays out in practice is what concerns property owners.

Potential pitfalls

There are four potential pitfalls in the proposed CVS implementation. Firstly, most citizens are concerned about the huge rise in property tax that will be payable. For areas where the guidance value is high, the increase could be over three times the current amount. These worries are well founded with the current CVS computation process that is followed in the rest of Karnataka. The reason for the steep rise in taxes is the high land guidance value rates in Bangalore compared to the rest of the State.

However, there seems to be a silver lining – we are now told by the Bruhat Bangalore Mahanagara Palike (BBMP) sources that a revised computation based on Floor Area Ratios (FAR) will be introduced such that the CVS tax impact will be negligible and may even reduce compared to the current taxes. This is welcome. There is need for a correction index and FAR based indexation is an interesting innovation. One hopes the BBMP is authorised to introduce such “ratios” on a computation system set out in the Act applicable for the entire State.

The second poser is whether it is appropriate to push this implementation in the absence of a popularly elected body at the Corporation and State level. Bangalore was exempted from adopting CVS for the last five years by the popularly elected representatives at the State and Corporation level. Can an administration move to implement CVS when there are past indications of elected bodies acting differently?

Thirdly, the CVS computation in the rest of the State does not appear equitable. It charges effectively a higher rate for those who build less (and in compliance of bye laws) and a lower rate for those who build more (and maybe in violation of bye laws) on similar parcels of land. The proposed FAR indexation seeks to address this issue, subject to BBMP being authorised to implement this correction factor.

Citizen killer

Lastly, the “citizen killer” clause is the return to inspector raj. The Act treats the property tax returns akin to Income Tax. So unless the assessing officer accepts the assessment, the citizen is not deemed to have complied with the property tax provisions. The new scheme provides for the BBMP officers to hold inquiry, inspect premises and satisfy themselves. For this, they have a one year period. It is needless to point out the likely “rent seeking” behaviour enshrined in this provision. So it is not Self Assessment, it is only Self Computation. If citizens are to be reassured that the provision will not be misused, the specific scrutiny and inspection process needs to be explicitly set out.

Legally, BBMP is empowered to go ahead with CVS as implemented in the rest of Karnataka subject to any challenges that aggrieved citizens might mount in courts. However, it would be prudent to make changes in the mode of computation and assessment to address issues of steep increases in taxes, equity concerns and return of inspector raj. In essence, the government representatives need to be sensitive to citizen’s concerns.


PS: The above is the article authored by V Ravichandar ( member, erstwhile Bangalore Agenda Task Force), and published in Deccan Herald under the caption 'IN PERSPECTIVE' on Mar 25, 2008

Comments

betashe's picture

Will CVS benefit apartment owners in city?

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The very first press reports annoucing the introduction of CVS said that apartment owners would benefit as the property tax would be lower under CVS.  I haven't been able to fathom just how since both the land value and building value are taken into account.

 

Can someone explain this puzzle and oblige? 

In the absence of critical information, we might end up like "the blind leading the blind..."

 

Thanks.

betashe

murali772's picture

flat owners better off

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The expectation is that for apartments since flat owners don’t own the land and have only a notional proportionate share. Consequently, the land component in CVS is a lot lower than a single dwelling unit. Muralidhar Rao
Muralidhar Rao
tsubba's picture

CVS

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CVS, Sakrama to stay: BBMP (DH) Cap on CVS-based property tax likely (TH) murali sir, hidden somewhere in the 2007 archives (perhaps last trimester) of the property plus section of the hindu, there is an elaborate discussion of this. what owning an apartment in blr means in contrast to pune, chennai etc. this is a very interesting issue. the market value of some of these apartments themselves are multicrore.
tsubba's picture

Power of Delimitation

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Politicians pressured Governor to defer CVS
Krishnaprasad, The Hindu

Bangalore city has become crucial for all major political parties following the increase in number of Assembly constituencies after the delimitation process. It was the increase in the number of Assembly constituencies in Bangalore city to 21 from the previous 12 that worked in favour of property owners in Bangalores who opposed implementation of the Capital Value-based System (CVS) for property tax collection.

Many residents’ welfare associations and representatives of various trade organisations successfully used the higher number of Assembly constituencies as “magic figures” to build pressure on political parties, who have now made opposition to the CVS a “poll promise.”

Many residents’ groups, such as the Coordinating Committee of Residents’ Welfare Associations of Indiranagar comprising 23 residents’ associations, had shot off letters to political parties to make their stand clear on the implementation of CVS.

Although political parties have not committed themselves in writing, party representatives gave oral assurances that they would take up the issue. It would have been a difficult task to persuade the political parties on the issue if there were no elections ahead. Increase in the number of constituencies in the city acted as a catalyst, said a president of a residents’ welfare association who had met many political leaders in this regard.

Meanwhile, the BJP took the lead in the attempts by political parties to take advantage of the situation as its leaders on Sunday announced that it would “oppose implementation of CVS in its present form and would include the issue in the party’s election manifesto.”

It was this announcement that “activated” Congress leaders to meet Governor Rameshwar Thakur on Monday to urge him to put the scheme on hold till elected bodies were constituted in the State as well as in the BBMP.

Even though it was the Congress Government led by the former Chief Minister S.M. Krishna which had introduced the CVS, party leaders did not want to lose an opportunity to take “political mileage” out of the present situation and to overcome the criticism by residents’ associations which had criticised the Government for introducing the CVS.

Ultimately, it was this last-minute “political pressure” that worked as the Governor on Monday night directed the BBMP officials to put the CVS implementation on hold as against his earlier direction to implement the CVS in a “people-friendly manner”.

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