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We want infrastructure but no taxes!

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We the proud citizens of Namma Bengaluru, arguably having a higher Household Income on an average compared to the rest of India cry a lot for infrastructure.

Yet, we do not want to pay property taxes and to add insult to the injury want to pay abysmally low taxes. If we do not pay adequate property taxes, we cannot even have good infrastructure.

Property tax represents some of the core revenues for BBMP and generating a lot of Property tax is essential.

New Yorkers criticise Mayor Michael Bloomberg about how highly taxed New York City is, but laud him for achieving extremely good civic services. Mayor Bloomberg ofcourse is only able to do that because of high tax revenues that he gets for the city.

We in Bangalore should get used to having high property taxes. It is the only natural and fair way for paying for the infrastructure upgradation that we desperately need.

Lets not look far away to New York City. Lets start with the City of Patna in Bihar.

Arguably, the Patna Model of Taxation is the the most legal and fair practice that even JNNURM seeks to promote:

More about that:

http://124.30.164.71/jnnu...

Therefore, i urge namma bengaluru to look at the bigger picture. The patna model of taxation is based on area, construction type and use. The actual property tax rates fell and the tax net increased massively.

Therefore, the fiscal health of the Patna Municipal Corporation is indeed very good. I am sure we have similar dreams for Namma Bengaluru.

Comments

Naveen's picture

Patna Model - Needed in Bangalore

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Mcadambi,

Thanks for posting this.

The FKCCI president in Karnataka also bemoans the revised SAS property tax rates as too high. What a shame !

We need some urgent reforms here to improve property tax collection. Bangalore also has the dubious distinction of being the city with lowest property tax collections amongst the six metros. Even cities like Pune & Ahmadabad have higher tax collections.

World class property rates

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Citizens of Namma Bengaluru want world class infrastructure but do not want world class property taxes.

This is where the fundamental disconnect is.

We cannot have world class infrastructure without world class property taxes.

But there is a way out. Arthur Laffer, a noted economist, famous for his idea, the "Laffer curve", opined that lower tax rates leads to a wider tax net and hence higher revenue collection.

SAS, when it was introduced under SMK's regime won plaudits for it's simplicity. A capital value based system is a core requirement if we are to get funds from JNNURM.

BBMP elections and property tax muddles

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It is both a good thing that the BBMP elections are due in about four months from now, but an equally bad thing that populism is coming in way of implementing sane tax policies.

Politicians across the political spectrum do not want any taxation structure resembling a capital value based system.

Ward wise

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 I read elsewhere that many senior citizens living in older areas of Bengaluru (Sadashivanagar, Basavangudi et al) resented the CVS because it over milked them.

There is some truth to this. The reason for collecting property tax is to develop civic infrastructure and maintain it as well.

The big flaw of the CVS is that it is not "ward wise". It taxes older areas which already have decent infrastructure and diverts most of those taxes to newer areas.

Now, for example, consider this layout:

http://bangalore.citizenmatters.in/articles/view/571-bda-layout-roads

That layout is a newly formed layout, much younger than Sadashivanagar. Property taxes according to CVS are quite low in this layout where property values may be around Rs. 2000 - Rs. 3000 a sq ft in contrast to Sadashivanagar where it is around Rs. 15,000 a sq ft.

The ideal solution then would be to reconfigure CVS according to specific ward needs.

That means, new layouts like Upadhya Layout would be taxed more because they need more infrastructure and places like Sadashivanagar would be taxed less because they need less infrastructure and would actually like to maintain existing infrastructure.
Naveen's picture

Differential Taxation - Will it Work ?

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I am not sure if such a differential taxation system will work because those that live in the better off areas with good, developed facilities will be paying lesser than areas that have poor facilities.

Older areas are also closer to the city centers, & newer areas with poor infrastructure are generally further off.

So, will this not be an anomaly ?

I think the better the facilities, higher the taxes is the correct way, & not the other way round.

Live example

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Naveen,

Let me illustrate using a live example. My grandma's sister bought a home in Sadashivanagar upon her retirement (in 1980s) for a sum of Rs. 5 lakhs (it was a big amount at that time). 

Even now she still lives there. Her pension comes upto around Rs. 1.5 lakhs per year.

Out of this, she pays around Rs. 10,000/- a year as property taxes.

If, according to the currently adopted CVS system, the tax goes to Rs. 50,000, she will be at loss.

This is just to highlight how older areas were developed under different economic conditions. This is the primary reason why i see opposition to CVS from older and senior citizens of Bangalore. It taxes them more than it taxes techies.

Lets go back to the layout which Shri Amit posted about in Citizen Matter. If you assume Amit is an IT worker earling about Rs. 5 lakhs p.a - then he can pay about Rs. 75,000 in property taxes. 

This property tax which Shri Amit pays can reduce as infrastructure improves.
Naveen's picture

Property Taxes Based on Development

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Mcadambi,

Such cases would be there, but few & obviously exceptions cannot be made for anyone.

IT workers or those with higher incomes will choose to live in areas with better facilities, & those with lower incomes will have to move out to areas that are commensurate with their affordability - unfortunately, this is probably the only way it will work.

Take Defence colony, Indiranagar, Koramangala or Jayanagar - these areas were affordable previously, but now, with high costs & correpondingly high taxes, it can be expensive living in any one of these areas, but taxation must also be higher - this cannot be helped.

On the other hand, if areas with poor roads, poor services, etc. have to shell out heavily since infrastructure has to be upgraded, most would not be able to afford since most would be from lower middle classes with limited incomes - such people would be much higher by numbers.

ananth.bangalore's picture

Can we evaluate government spending? How much has gone where?

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Are we supposed to not link taxes to mis-use of funds by government agencies? (when Lok-Ayukta has no suo moto powers- why is someone not giving it to them?) Why am i to pay more money because most of what i already paid goes misued? Sure, US or anyother country will have curroption, but india is pathetic. see survey results from many international agencies. WHY SHOULD I PAY TAXES FOR GOVT TO MISUSE IT? I am willing to live with bad roads and not pay higher taxes. i know if i need a kilometer of good road, i will need to contribute my equivalent to builing 3 or 4 kilometers of good road. And i will not stop complaining too. like all of us are doing.If we want to solve some issue and not think about the root cause, we will never solve it. Hail Democracy.

Low tax base breeds more corruption

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 It is a vicious cycle.

I understand the frustration of those who pay taxes. Lets face it, without taxes, there would not be abundant infrastructure. I receive a lot of brickbats from well meaning citizens when i campaign for a more scientific local tax framework for Bengaluru.

But we have to break the vicious cycle. Let us pay tax and then demand action on corruption. That is the only ideal way out.

This city which probably makes tax and other MIS software for the rest of the world does not seem to be making good use of it's exports for itself.

But for a more democratic system, an elected local council is a must. We in Bangalore a paying the price for not having an elected council. There is simply no accountability and decentralisation.

I am bullish after the recent HC order that BBMP polls would have to be held in four months.
ananth.bangalore's picture

i dont agree that we have to

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i dont agree that we have to pay some more before we can demand accountability. I will be first in line to pay more if i know all the money has been used up for the right reasons ( and is not sitting as a TV or a car in some lokayukta raided minister's home). I am not buying another TV for some minister. Its is not like you say- i will pay more and demand action on curruption... Who will demand it to? Before i figure it out, your money will already be sitting as a TV some place and entertaining the people you voted. And at that time, you and me will be lugging ourselves to work- when a scooter guy will skid in a bad road, fall into a car and die. People need not die to entertain someone. Did you see a noted politician happy and merry when talking to people immediately after the mumbai blast? He said he was watching everything in tv all the time. Probably bought with the money of the guy who died to entertain our man.

Levy and collect commericial property tax better

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There are many instances and millions of these small mom&pop stores and a host of corner stores from which property tax collection is abysmal at best.

All these shops functioning in 150 sqft or less virtually get away paying no tax at all.

It is these units that should be taxed.

Citizens groups like Janagraha should help out by formulating a better MIS system which tracks all these properties and changes in property use pattern.
ananth.bangalore's picture

Some thoughts in figures..

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I agree mcadambi. Industry estimates (AT Kerney Report) put unorganised retail to be in the order of 95%. Thats a big area where taxes can come in. I dont have any figues to support me, but the understanding i have is that the commercial taxes collected are just about 30% of the possible 100%. And in that estimate, even if we say conservatively that 70% of the taxes are put to good use and right use, we are talking about 20% taxes going back to serve 100% population. Imagine, with right people and right processes, the infrastruture can be 4 times better. At the least, 3 times better, giving away inefficiencies. Who says every indian city cannot look like the best cities of the world? It can happen tommorrow with no further financial reforms, only finiancial discipline is needed. There is no point of going on increasing taxes, evne if your 33% taxation becomes 66% taxation, you will find it has very little imapact on our infrastruture. we will only suffer more because of high taxes and gain nothing.
lowprof's picture

No mindless tax increases

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I know I will get a ton of hate mail for bringing in different things into the discussion but they are all related so I am bringing them up here… I am quite surprised at the discussions going on in this forum. Increase taxes?? Art Laffer style supply economics? These theories are exactly the reasons for the American economy now going bust: http://in.youtube.com/wat... What we need is less government in all spheres except security and general administration.Taxes should be less if anything on the end customer. Specifically in India, we need to get out of the clutches of a central government having all the economic powers and weak state governments.

We have some of the best businesses in Karnataka and most of every rupee remitted as taxes goes to the center and the state governments are left to go with a begging bowl for everything to the center starting from seeds, fertilizers, rails, language status and what have you. Increasing property taxes is not the solution but demanding a free economy with powerful small states and a lean and mean central govt is the necessity. Also all personal income taxes at source for individuals should be eliminated and corporate taxes, fair tax system on goods/assets/services purchased for EVERYONE should be adopted (Itemized taxing so that government spends only on those heads). Please read about the Austrian economics for the real deal. http://mises.org/ http://www.lewrockwell.com/

Even our own history teaches us to have low taxes for a prosperous people-Read Mahabharatha Shanti Parva Bheeshma to Yudhistira and Chanakyas Artha shastra. In many of the forums in this site as well as others we read issues in people wondering why public sector/government entities fare badly with a lot a corruption starting from the lowest levels whereas private companies having lesser corruption at lower level and mega frauds at the highest level. If observed these high level frauds are generally in connivance with the government subverting the laws. The decay in the governments and the general public in turn over time is because we have killed the meritocracy system and in name of castes not allowed people with stuff to thrive and Ayogyas to thrive. So trying to solve problems like police corruption by giving them guns or increasing the salary by 1000rs is not going to take us anywhere anytime soon( A reason given for increased taxes).

The sooner we realize these the better.

Thanks.

murali772's picture

yes, less government is the answer!

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While equitable devolution of funds is certainly a serious issue, as far as government size is concerned, it is the states that are the bigger culprits. Check: http://praja.in/blog/murali772/2007/12/29/less-government

And, while agreeing with Anant that better compliance will follow better utilisation, in a democracy, the onus again is on us to ensure that. And, in that respect, I agree more with Cadambi's point of view.

Muralidhar Rao

Muralidhar Rao
lowprof's picture

Less government

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Murali,

I think you have confused the concept of the forefathers of US who wrote their constitution: the concept of less government does not necessarily mean kicking out people from Washington and just resucing their numbers. The intention is to have the government powers and functions curtailed to the required minimum and increase them if absolutely required to where their functions are required and necessary. So kicking out people from Vidhana Soudha and emptying Vikasa Soudha is not the need or requirement. Curtailing their functions to only their functions is what is desired. For instance in Karnataka( as well as India), Governments get into everything like religion(Mujrai, Haj boards, Evangelist activities). They even give grants for private religious instituions from tax payer money.Charity should always be private not from public money. Managing industries,railways, buses, Education etc are other sure fire recipes for disaster-recall the innumerable scandals in these areas, latest one being Bisi Oota, Cycle scandal. But what we require is good, atleast somewhat upright politicians who will be good lawmakers. Letting private people to go amuck will otherwise create private monopolies rather than the desired capitalism.

The other point you mentioned about all the responsibilties being on us is absolutely true for a true democracy not for us. It is accepted from ancient times that those who choose between lesser of two evils concept end up always with evil only. I do not agree with people who say you have to vote on election day in India(or US)and that is our only prime responsibility. We have seat reservation system where if you are from certain castes you cannot represent people and contest elections. I know one of my relatives who wasted his whole political life in BJP/Sangh parivar but never got a chance to contest because of these silly rules. Our responsibilty and remotely possible success can be only if we war with thoughts, nonviolently.

But honestly, in a lighter vein, I am personally leaning towards UG Krishnamurthy that we are headed for sure disaster... http://www.well.com/user/jct

Thanks,

Venkatesh

balajiolety's picture

more taxes?

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People.....lets get it right....No one wants to store water in a leaking tank....!specially when the water is precious....I am not saying that we should not pay more taxes..But lets strive more harder to get the systems more transparent( i am not advocating 100% efficiency or transparency.....A lot has to be done to get the the machinery right....Only then everone would contribute because they wil be aware then that what they pay comes back to them...!
ananth.bangalore's picture

Mcadambi would like your point of view on this

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Hi Mcadambi, Keen to know more about your point of view after many things have been said. Eager to know if i need to see it from your point of view, or if you think you have moved on. :)

My view

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In light of most of the comments above, most of you seem to oppose the need of raising taxes. Well, i can only say that property tax rates in Bengaluru are one of the lowest in the nation. They have not been adjusted keeping in view our infrastructure requirements. Second, there is no good information base which will enable revenue intelligence. Imagine this, a small xerox shop in Bangalore makes a turnover of atleast Rs. 1 to Rs. 1.5 lakhs per year, but is assessed residential electricity, water and tax rates. The owner of the premises out of which such shops are operated out of, typically does not care to pay appropriate charges for commericial property. Hence, IMO, BBMP needs to actively have a good MIS framework of Bangalore properties for the sake of revenue intelligence.

Mangalore's experiment with SAS

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 Mangalore City Corporation has had a good experience with SAS:

"The MCC in a series of experimental cases in different areas has imposed SAS in about 250 properties in the city equally distributed in all 60 wards of the Corporation area in which the MCC has received encouraging results. It has mopped up Rs. 4.5 lakhs. "imagine what will happen to the city’s finances if the SAS comes into being in all the 1.17 lakh properties" says chief whip of the ruling party Shankar Bhat."

http://mangalorean.com/news.php?newstype=broadcast&broadcastid=107106
silkboard's picture

I am with you cadambi

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Before you leave disappointed from this discussion, let me raise my hand of support. If our tax rates are lowest in the nation, I support raising property taxes. JNNURM mandates a switch away from "rateable" tax system. Move to CVS was not something that BBMP dreamt and planned on its own. It must move to CVS or similar system which will not be based on discretionary powers (because that promotes corruption).

I am still trying to understand the details of the new UAV (unit area value based) system. UAV is a jargon right now, the devil would be in the details. Lets wait for BBMP to upload the details on their website this afternoon.

By the way, Mumbai too is moving away from rent value based rateable property tax system (news in Biz-Standard last week). News articles say Mumbai will go to CVS.

Mcadambi, if you could do a a new post or Gyan page on different methods/systems for calculating property taxes, and the per house collection like numbers across 8-10 cities of India, that will be nice and informative for us all. You start a Gyan page, I will join in with my contributions.

blrpraj's picture

higher taxes does not mean better infrastructure

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Before raising taxes we need to figure out where the tax money is going currently. What is the use of raising taxes if the taxes are mismanaged? The taxes paid so far haven't translated into equivalent good services/infrastructure of standard quality.

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