Article 243
Y lays down in principle
formation of Finance Commission to review the financial
position of the municipalities and to
make recommendations to the Governor within a year (under amendment 74-1992). It also clarifies
that thereafter at the expiration of
every fifth year, another Finance Commission will be set to review the financial position of the
Panchayats and to make recommendations to the Governor . The Governor in
turn with explanatory memorandums shall
ensure to the action taken thereon to be
laid before the Legislature of the State.
Nearly
all states set finance commission to the effect by early 1995.
Every
commissions recognized that Municipal bodies were in no position to meet
financial demands in even obligatory functions leave aside discretionary functions. The
Commissions also noted that even statuary avenues provided for revenue
remained unexploited or under exploited.
The
three main obligatory taxes levied and collected by the municipalities were land
and building tax on annual letting basis, octroi and professional or vocational
tax . Most of The first state finance
commissions set up did not attempt any headway in exploring more avenues in
terms of obligatory tax. The essence was on defining the domains rather than
exploring or stretching the limits.
The
source of land and building tax has
become not only non buoyant but also
has run into
serious problems of
record keeping, assessment,
valuation, administration and enforcement resulting in decline in
revenue in number of cities and towns. Large number of properties
have remained un assessed and
under assessed. Further, lower assessment of mixed type of construction of which
only a part attracts low rate is also one of the factors for low collection.
Government properties are outside
the purview of property tax
though there does not seem specific constitutional provisions for such exemption .
Even the rates of these obligatory taxes are set by state governments .
For Revision Urban Local Bodies have to approach the State
Governments resulting in delay and loss.
There is an initial lay off time where
individual houses deliberately delay in
paying the taxes.
Enforcement may be
better ensured if the collection is handed over to Private parties with
incremental service fees based on collection over a minimum service fees. It
can be based on the principles of electric bill collections by some power
distribution network.Government buildings should be brought under these tax
levy structure . Tamil Nadu state
commission has requested the Government that Tamil Nadu Electricity Board shall
provide the details of service connections given to the new buildings on a
monthly basis so as to wake up the revenue wing for assessing the property
without waiting . All the cell towers
put up by cell phone companies should be subjected to tax. All fee collecting
institutions like Nursery, Matriculation schools, Tutorial colleges, self
financed Engineering,
Medical/Dental colleges, para-medical institutions, teacher training institutions,
coaching centers etc should be subjected to Property tax at twice the rates as applicable
to commercial buildings.
Octroi
on goods and animals brought into municipalal area for consumption or use or sale. Many
municipal finances depend heavily on octroi income. By early 2000 administrators
realized that octroi is a regressive tax which adversely affects integration of the
economy and interrupts the free flow of goods.
As both octroi and VAT are taxes
on commodities and abolishing octroi with corresponding additional VAT levy amounts only to a change in the mode
of levy and collection of tax on commodities.It, however, provides liquidity
and a healthy cash flow. Any alternative to octroi therefore, needs to match
the resources generated through octroi; it should be free from the defects of
the current levy; should provide
adequate liquidity to the urban local bodies (ULB’s);, it will not be
possible for them to discharge
their responsibilities unless they are
given an equally potent alternative revenue source. Octroi on sale of goods
which are worth more than a certain amount per unit , luxurious items can be
added to VAT.Of Course Middle class and upward mobility of the middle class will be
pinched .
For
traders and business establishments, the gross turnover should be taken as the
basis instead of income for levying the profession tax. The collection can be
done by sales tax department on yearly
basis and remitted to local bodies. The
income slab rates for salaried class shall be revised and that those in the
higher income bracket shall be made to pay slight higher levy. The collection
should be done by the employer and remitted to the local body on yearly basis.
The
dependence of Urban Local Bodies on obligatory taxes remains very high. The
discretionary taxes at most contribute to one tenth of the revenue generated.These
type of taxes are surely under exploited. Pilgrimage tax, tax of hired
vehicles,water tax ,sewage tax etc come under these obligatory taxes. Many of
these can be done with as for eg. Sewage tax collection in small municipalities
. Other means to raise revenue can be looked upon.
The power to levy
and collect tax on Cable TV from operators at the rate prescribed should be
vested on the local bodies instead of State Government. In all Municipal
Corporations, parking area may be identified in the business prone locality and
parking lot developed. Parking fee may be collected from the owners of vehicles
on the basis of the fees fixed by the Council. Special levy may be levied on
the commercial business houses which have no parking space or inadequate space
. Entertainment Tax shall be transferred to local bodies. With A Collection
charge of the tax proceeds of the balance should be transferred to local bodies.
There should be
separate detailed heads for Surcharge on Stamp Duty collections and
apportionment to local bodies. SIM cards of Mobile phones should be given
mandatory on basis of receipt of Phone
. Costly mobile phones should be levied a tax which shall be transferred to
local bodies. It will also reduce sale of smuggled phones.
Non tax revenue is
another area where impetus is needed.One major area to be ventured into by the
local bodies should be development of Parks, buildings through public –private partnership. Utilities like conference halls.
Marriage halls, recreational facilities can be developed under the scheme and
handed over to private entrepreneurs to manage with a fees.Similar attempt in
ensuring high end public transport is
being carried out.
The external
assistance from governments to muniplaties both plan and non plan
expenditure is insufficient and nearly never forthcoming
when needed. An yearly allotment like imprest should form the major part of
government assistance by central government. This money can be readily avilable
for Projects which when approved by municipal body and
acredited town planners shall be expedited. A minimum amount of central
assitance based on population shall be remitted to Municipal bodies directly.
Every year along
with the Budget, the State and Central
Government must place details of the transfer to the
local bodies made during the year. The distribution pattern for the release of
assistance should also be looked in.The present practice of releasing the
assistance at the fag end of the
financial year shall be discontinued .
The important issue
remains related to devolution not aid or assistance by state governments.
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