CVS from April 1
BBMP's new property tax system is likely to raise a lot of storm.
SAS to go; CVS from April 1
http://deccanherald.com/C...
BBMP will introduce its new system of property tax based on the capital value of a building (CVS) from April 1.
The civic body has fixed the rate of tax for self-occupied and residential buildings at 0.25 per cent and 0.5 per cent of the capital value respectively. The rate for industrial and commercial properties will be one per cent and two per cent of the capital value respectively. For vacant sites, it has been fixed at 0.2 per cent.
The rates of tax under the new system, to be calculated on the basis of the current guidance value of the property, will increase more than five to six times than those prevailing under the old Self Assessment Scheme (SAS) based on the annual rental value of a building.
Issues relating to the taxation system were debated by traders and representatives of various civic groups at a meeting convened by the Federation of Karnataka Chambers of Commerce and Industry (FKCCI) here on Tuesday. FKCCI President S S Patil appealed to citizens not to pay under the new system and said he would lead a delegation to meet the Governor on March 14 demanding withdrawal of the system. We will launch a ‘no-tax’ campaign if our demand is not met, he said.
“Though the system is all set to be introduced from April 1, BBMP has failed to release the information booklets to citizens. This is an arbitrary decision taken by the officials and cannot be accepted,” he said.
FKCCI member B K Goyal asked citizens to dash off letters to BBMP Commissioner S Subramanya demanding the system be dropped. Apartment owners in the city will stand to gain as their tax rates will reduce under the new system, while owners of vacant sites too would have to pay now, he said.
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FKCCI
Anomaly In Urban Tax
Anomaly in urban tax
Deccan herald, March 05 2008
Former member of The Planning Commision, G Thimmiah, argues that the state is not authorized to levy CVS.
For the purposes of levying urban property tax, the Bruhat Bangalore Mahanagara Palike (BBMP) is reported to have switched over from rental value to capital value of the urban property. This switch over has rightly been opposed in some quarters.
BBMP Commissioner S Subramanya, however, has gone ahead issuing an order to collect the urban property tax in BBMP areas based onthe capital value of buildings from April 1, 2008.
The former Mayor P R Ramesh, does not want the BBMP to impose undue burden on the property owners in Bangalore city. But Subramanya, being hard-pressed for revenue to undertake urban infrastructure projects and to provide basic urban civic facilities, has gone on raising the rates of fees on several BBMP services and also has decided to make the property owners in Bangalore city to share a portion of the sharp increase in the capital value of urban property.
Objection
Curiously, the urban development department has raised an objection to the decision of BBMP to switch over from rental value to capital value base of property tax without first getting the rental value based Self Assessment System evaluated by an expert body and without effecting proper amendment to the Karnataka Municipal Act. But all these authorities have either not cared to examine the constitutional status of a capital value based urban property tax or simply ignored it with a “who cares attitude.”
The power to tax urban property was conceived in the Government of India Act of 1935. As per the Act, the basis of property tax was understood to be rental value of property following the Anglo-Saxon tradition. When the Constitution was drafted, most part of the division of tax powers was copied from the 1935 Act.
Accordingly, in the Seventh Schedule of the Constitution, under the Union List, Item 86 clearly mentions that “taxes on the capital value of the assets exclusive of agricultural land, of individuals and companies, taxes on the capital of the companies” are reserved for the central government. Exercising this power, the central government has been levying wealth tax on property of individuals and some property of companies.
Under the State List, Item 49 gives powers to the state governments to levy “taxes on lands and buildings” and Item 61 gives the powers to levy “capitation taxes.”
Thus state government entrusted the power to levy tax on buildings to municipalities. But the basis of such a tax cannot be capital value as it is reserved for the central government under Item 86 of the Union List. This constitutional lapse cannot be ignored by the people of Karnataka. Before any amendment to an existing legislation is mooted, the law department is consulted. How did the law department permit this lapse?
Solution
The BBMP might have justified the switch over from rental value base to capital value base of property tax on the ground that many other countries are levying such a tax. That is blatantly a stupid justification because, the constitutional division of tax powers differ from country to country. India being a former British colony, it copied into 1935 Act what was prevailing in England.
The central government has not delegated nor empowered the state or municipal authorities to levy property tax based on capital value. That would have meant levying two wealth taxes which would have been disastrous.
Therefore, the BBMP cannot levy property tax based on capital value as it would amount to levying municipal wealth tax.
Taxation of capital value is entirely reserved for the central government. The former Mayor should file a suit in the high court requesting them to quash the BBMP tax notification on the ground of usurping constitutional power. The BBMP should explore alternative ways of raising revenue.
Probably the department of urban development may constitute an expert committee to explore all possible ways of augmenting the revenues of the urban local bodies in Karnataka.
BBMP Commissioner's Response
Deccan Herald, March 10, 2008.
BBMP, Commissioner, S SUBRAMANIAN, responds to G Thimmaiah's article.
This is in response to Anomaly in urban tax (DH,March 5) by G Thimmaiah, former member, Planning Commission, wherein he has stated that the Centre has not empowered the states to levy property tax based on capital value.
Thimmaiah has stated that it is a tax on the capital value of the assets of the individual and therefore falls within the scope of Entry 86 of List I of Seventh Schedule of the Constitution and not under Entry 49 of List II of the Seventh Schedule and therefore, the state legislature has no competence to enact legislation. He has also said that the tax levied is on the “income” derived from the immovable property of an individual and therefore, would fall within the scope of Entry 82 of List I of Seventh Schedule of the Constitution, thus taking it outside the state government’s purview.
These observations are not what are contemplated under the Constitution. The Constitution makes a clear distinction between what matters fall under Entry 86, 82 and 49. Entry 86 is a tax on the capital value of the assets and is leviable by the Centre under List I. The entry reads: “Taxes on the capital value of assets, exclusive of agricultural lands of individuals and companies taxes on the capital value of companies”. Entry 82 is a tax on income and is leviable by the Centre. The entry reads “Taxes on Income other than agricultural income” of List I of Seventh Schedule. Entry 49 is a tax on property and is leviable by the state government under List II of Seventh Schedule. The entry reads “Taxes on land and buildings”. It is this Entry that provides power to the state government to levy tax on property, which includes component of land and building. The choice of design for property tax is constitutionally valid if state government legislates tax property tax based on the annual or rental value of the property, the capital value of the property, a tax based on land or site only and excluding buildings and a combination the above three methods.
Capital value and rental value reflect the valuation of the property, though derived differently. Under the annual rental value system, the valuation of the property for assessment is based on the estimated or notional rental value and under capital value system the tax base is the market value of the property.
Prior to the amendment of the Karnataka Municipal Corporations Act 1976, property tax was levied on the basis of the annual rent that the property would fetch. The basis for computation was later shifted through an amendment from rental to “Taxable Capital Value”. The expression “Capital Value” used in the Act is not however the cost of construction of building or its market value as a wealth. It is a working expression, which may roughly be said to be the taxable value of the building. The expression “Capital value” came up for interpretation before the Apex Court in DG Gouse & Co, (Agents) Pvt, Ltd, Vs State of Kerala reported in AIR 1980 SC 271 wherein the court observed: “The expression ‘capital value’ used in the Act is not however the cost of construction of the building or its market value as a wealth. It is a convenient or a working expression which may roughly be said to be taxable value of the building and the state legislature was competent to select that as the basis for assessing the building tax”.
Section 102 of the KMC Act provides for the method of assessment of property tax. Under this section, the taxable capital value of the building is assessed together with its land. An important distinction is to be borne in mind between assessing the property value for the purpose of property tax and assessing property value that an informed and willing buyer pays a willing seller in a competitive market. In an actual sale or purchase of properties, the parties are seriously guided by the actual prevailing market rates. This level of accuracy of valuation is not required in the case of property tax assessment.
For the purpose of valuation of land and building the rates prescribed under Section 45 B of the Karnataka Stamp Act 1957 and the public works department respectively are adopted. The valuation by these departments does not reflect the actual market value, but a valuation based on a mass appraisal method. Therefore, by this simple adoption of these valuation principles the property tax assessment will have an objective base. Further, the assessment of property depends on the location of the property and the various attributes of the buildings such as type of construction, nature of use and such other criteria.
The amendment to the KMC Act was challenged before the Karnataka High Court, which upheld the constitutional validity of assessing property under capital value system.
Today, Bangalore citizens have no choice of paying the property tax by any method other than capital value system for the simple reason that this system is mandated under the legislation. Secondly, Bangalore Mahanagara Palike became BBMP with five of its new zones already following the capital value system in the assessment of property tax for over three years.When such is the position, continuing with the ARV system is a serious lapse and is questionable.
Re Introduction of CVS Property tax in Bangalore
Apart from all the objections others have voiced, I wonder just how legally justifiable this move is, considering that we have no government in place in the State, elections are imminent and any new programmes or projects announced at such a time are normally thrown out by the Election Commission.
Remember what happened with Sakrama? Another ill-considered move by BBMP. the corruption-ridden monolith, grasping desperately to lay hands on more money since all project funds are usually misused. This is not the first time that the citizen has been brought into the cross-hairs of the government's trigger to subsidise corrupt practices and systems.
Has anyone filed a PiL against CVS that anyone knows of? Otherwise some of us could pitch in perhaps?
Regards,
Betashe
betashe
CVS
B K Goyal, who runs a 500 sq feet machinery shop on Silver Jubilee Park Road by paying a rent of Rs 3,500, is worried that if the tax for the shop is calculated under CVS, then his owner might increase the rent since the latter would have to pay a higher tax to the BBMP.
These are just two examples of how CVS has become a cause of concern for citizens.
Though BBMP officials assure that the average rise in the rate of tax would range between 30 and 60 per cent depending on the area and property dimension, citizens are worried that the new system would burden them so much that they may have to stop paying the tax.
“All pensioners and elderly persons like me whose only income is the pension, will eventually have to leave the City and go. And moreover, under CVS I do not have the facility of paying in instalments as under the old Self Assessment Scheme (SAS) of property tax, which was based on the annual rental value (ARV) of a building,” Mr Thomas said.
“A sudden abnormal hike will definitely burden the citizens. BBMP has neither consulted the public nor released any handbook on the scheme so far. When it could spend more than a crore on publicising Sakrama, why did it not publicise CVS?” Mr Goyal asked. The BBMP, which is introducing CVS from April 1, has fixed the rate at 0.25 per cent of the capital value for residential self-occupied buildings and 0.5 per cent for rented residential buildings. The rate for industrial and commercial properties has been fixed at one per cent and two per cent of the capital value respectively. For vacant sites, it has been fixed at 0.2 per cent.
While citizens feel that this is sure to increase their tax by more than five to six times, BBMP Additional Commissioner (Finance) Sandip Dash told Deccan Herald this was a misconception. “CVS will definitely affect people, who were either under-paying or were evading tax so far,” he said.
There will be a steep hike in the tax rates for properties in Koramangala, Jayanagar 4th Block and surrounding areas with IT connectivity because the guidance value here has gone up considerably, he added.
Online and other Grievance Fora to protest against CVS?
The government wants people to use this tool to highlight the problems they faced while dealing with Government officials or departments like Passport Office, Electricity board, BSNL/MTNL, Railways etc etc.
I know many people will say that these things don't work in India , but this actually works as one of our colleague in CSC found. The guy I'm talking about lives in Faridabad . Couple of months back, the Faridabad Municipal Corporation laid new roads in his area and the residents were very happy about it. But 2 weeks later, BSNL dugged up the newly laid roads to install new cables which annoyed all the residents including this guy. But it was only this guy who used the above listed grievance forum to highlight his concern. And to his surprise, BSNL and Municipal Corporation of faridabad was served a show cause notice and the guy received a copy of the notice in one week. Government has asked the MC and BSNL about the goof up as its clear that both the government departments were not in sync at all.
So use this grievance forum and educate others who don't know about this facility.
This way we can at least raise our concerns instead of just talking about the ' System ' in India . Invite your friends to contribute for many such happenings.
betashe
important link
CVS
budget problems I
budget problems II
BBMP's Resource Crunch
This has been the traditional answer to citizens' need for better services.
Having said that it is also true that BBMP is not a profit-making Croesus (like Doordarshan used to be and probably still is) expected to shell out crores for infrastructure projects. There are enough banks such the ADB, World Bank etc to lend money. The problem arises when BBMP and its many local wings are unable to cover their own maintenance costs such as salaries etc., which signals that there has been serious corruption.
Over the years I have witnessed magnificent gulmohur trees in residential areas of the city fall to the axe just because that was supposed to be payment for a petty contractor since the cash was 'just finished'! Whatever that may mean...
Then the open sale of sewing machines meant for the brand new trainees of the Tailoring programmes meant for Women's Development, is also an old story. Even the stipends dont get paid!
One thing is very clear- that BBMP's budget making and adherence is most discouragaing, lacking perspective planning.
I recall that some Citizens Organizations were at one time interested in establishing more transparency and openness of the BMP's budget. Think I attended one of those sessions with Dr A Ravindra and one Dr Nageshwara Rao of ISEC who had done a study of the current BMP budget at the time.
Obviously such efforts need to be multiplied and possibly Civil Society Organizations are engaged in it. However there has to be more openness established and the information shared with the public. Without that crucial step, it is foolhardy of BBMP to expect citizens to fall in with CVS or any other scemes. That is our basic right I think.
Sorry if I have deviated.
betashe
cvs
Hard one
Drive safe. It is not just the car maker which can recall its product.
BMP's Budget meeting
Sorry , I should have specified the year but cant remember although it was certainly not last year, so its not the same meeting you referred to TS! It was some years ago.
But I remember that a group of us lobbied with the BMP and the Dept of HUD, BDA and Karnataka Slum Clearance Board, for establishing more transparency in the system. Some good that came of that was the birth of civic groups like CIVIC, Swabhimana and others. But none of the State agencies committed to make this public sharing of budget-making and objectives an ongoing feature.
I had to go away on work soon after that for a good while, so could not really keep up with the local scene. But I had the opportunity to work as Senior Fellow at the Institue for Policy Studies, JHU, and my research was on Public Private Partnerships for Urban Development looking at micro-level efforts by NGOs to conserve the urban environment and protect heritage buildings in Baltimore. In the course of my study, one big truth that hit me was that the Public sector's social objectives and the Private sector's profit objectives could only be pulled together by a larger cause such as the environment or a sustainable city life, and this could only be engineered by local Citizens Committees whose members were drawn from all sectors and walks of life.
I think Swabhimana tried to do something like this on the lines of the Ward Committees or so I heard long ago. Havent the foggiest as to whether it still exists and in what form and scope.
Right now, if you are serious about doing something about citizens' concerns, we can try to start working on that. Anyway I have been calling the local BMP Revenue Offices almost daily and till this morning they had no info on CVS, no booklets are available etc.
Meanwhile if you have access to an NGO or consumer group, you could think of co-organising a public meeting on CVS, with Subramanya, Commissioner, BBMP and Dr A Ravindra, and any informed citizen as speakers. Only a suggestion, if you dont agree, please forget it. I am trying to see what can be done in the short time we have with max public impact.
betashe
Municipal Bonds
Sorry for writing this second post within the hour, but does anybody know what happened to the Municipal Bonds issue that was launched by the BMP some 8 or 9 years ago for road making in the city?
Do we as citizens know where the money is housed or invested? Whether it was used for road building as such etc., etc. I guess accountability flew out of the window...
The issue of such public bonds by Munipalities has been done before in Ahmedabad but the scheme succeeded under a capable bureaucrat Keshav Mehta, who was later hijacked by the World Bank.
Whichever one looks at it, without public vigil and pressure, Municipalities are not going to budge on making money the easy way. Unfortunately they are the utterly representative of our legislatures and Parliament.
I wonder what kind of rascals will turn up as leaders, with the coming elections. What can we do about improving the situation for ourselves and our city?
betashe
muni bonds
Grievance registered against CVS
Yes, finally got it done this morning. Let's see what the outcome will be.
The chap in charge of the Redressal procedure in Karnataka is one R Suresh IAS.
Hope this stirs some dust.
Thanks for the link to the M Bonds story. Good reading.
betashe
grievance
Re Grievance against CVS
Well, I just used the online Grievance forum of the DPAR, GOI (link sent to you last week).
Since BBMP comes under the State of Karnataka, I followed that route. I wanted to copy paste my complaint here but couldnt, rather wasnt allowed to by the forum tech.
But I did get a reply from them saying they had received the complaint and gave me a number too. Can copy it for you tomorrow morning, since I have to write now.
btw did you read the BBMP PRO's spiel in Deccan Herald? Says CVS was debated in 2001 if I remember right. We can always counter that saying the present Legislature of 2008 did not approve it.
Anyway, let's see how things go.
betashe
grievance
Fwd: Details of Registration of Complaint with DARP
Successful Registration
Your Grievance is Successfully Registered. Note your
Registration No. DARPG/E/2008/01687
for future reference.
betashe
Deadline Xtended, Tax Calculator on website
Property owners get more time
The Hindu
Legality of CVS questionable
Sir, — This refers to a report in The Hindu on 17th March. The Capital Value System (CVS) of property tax assessment replacing the Self Assessment Scheme (SAS) of Bruhat Bangalore Mahanagara Palike is in violation of norms. Under CVS, wherein the tax will be six times the amount under SAS, the tax is levied not only on the value of the structure but also the value of the site. This system, therefore, assumes the form of wealth tax which is the domain of Income Tax Department. With the introduction of CVS, the municipal authorities are trying to invade the Union Government’s arena, the validity of which is questionable. The High Court of Rajasthan, in an appeal filed by East India Hotel Ltd., has decreed that the municipal or State authorities do not have the authority to levy tax on the aggregation of values of building and land. The court has cited Supreme Court decisions in this regard. This decision needs to be brought to the attention of the Governor besides filing writ petitions in the High Court.
N. Venkataraman
Bangalore
http://www.hindu.com/2008/03/24/stories/2008032452480300.htm
Re Legality of CVS Questionable
It is good to know that CVS is questionable in that it levies tax on the value of the site too.
Your references to the Rajasthan High Court and Supreme Court cases are invaluable and can be taken as a precedent. Any advocate could locate them in the law journals of the apex court.
If only we can devote some time to the issue, I am sure we could find more loopholes.
betashe
Cap on CVS likely
Afshan Yasmeen, DH
In what could be seen as some relief to property owners, the BBMP is likely to fix a cap on the tax rates under CVS, its new taxation system. This follows a direction from the Housing and Urban Development Department to stipulate a fixed limit on CVS rates, similar to the two-and-a-half times’ ceiling under the existing Self Assessment Scheme (SAS). “Though the rates for various categories will remain the same, the BBMP has to put a cap on the total tax. This is to ensure that citizens’ interests are safeguarded even under the new system. We have directed the BBMP to implement the system only after having several rounds of discussions and awareness campaigns with various stakeholders such as the FKCCI residents welfare association and NGOs,” Principal Secretary (Urban Development) K Jothiramalingam told Deccan Herald on Monday.
The erstwhile BMP had stipulated a 2.5 times’ cap on rates under SAS when it was introduced in 2000. Under SAS, if taxes shot up abnormally property owners could just pay two-and-a-half times more than what they were paying earlier or the actual taxes, whichever was less.
“We have written to Commissioner S Subramanya to study the increase in tax for properties under various categories and decide on a reasonable limit, which will not burden property owners too much. Officials have already started working on it,” Mr Jothiramalingam said. The Principal Secretary asserted that the new system would “operationalise” only from June. The civic body has also been directed to publicise the scheme and educate the public soon after the information booklets on CVS are released. “All this will take at least two months after which the citizens will need some time to understand the system. So we have asked the BBMP not to expect any returns in the first quarter,” he said.
The new moves have come in the wake of a series of protests by FKCCI and various residents’ welfare associations. The FKCCI, which has received more than a 1,000 letters from citizens opposing the scheme, will hold a public meeting on March 26.
S Sukumaran on CVS
Will Capital Value System find acceptance among property owners?
K, Sukumaran, The Hindu
Have we ever thought of the number of times the owner of a property is asked by the State to pay taxes and levies? Let us make a count.
The buyer of a property has to first pay stamp duty and registration charges.
As long as he holds the property, annual tax has to be paid to the revenue collection authority such as panchayat, municipality, corporation or SEZ.
If the owner wishes to construct a building on his land, plan approval fees will be required to be paid depending on the type of building. Once the property is completed, annual tax will be levied on the basis of the system of tax in vogue. The system undergoes change from time to time. Thankfully, life tax is yet to be levied for real estate unlike in the case of transport vehicles.
Taxation methods
The administrators, from time to time, introduce norms for valuing property for purposes of determining the tax. While money paid by the buyer to the seller must reasonably be the basis for stamp duty and registration, under the guise of preventing tax evasion, guideline value is prescribed, which is again revised at irregular intervals. The guidance value then becomes the market value!
Property valuation methods in earlier days were based on the type of construction like brick, mortar, mosaic, granite, marble etc. In recent times, Self-Assessment System and Capital Value System have been evolved by some municipal corporations as innovations. The SAS was found acceptable as it had in-built checks and balances such as depreciation. But the CVS goes by the market value and commercial area consideration even for residential buildings.
Highlights of CVS
Provision of infrastructure and amenities is the argument behind raising taxes. But, undue rise like CVS may be counter productive. The lower revenue from stamp duty and registration during the fiscal 2007-08 and the lower estimate for 2008-09 indicate that the present levies are high and not affordable.
Can't pay Property Tax till April 21 ?