What is Bengaluru’s new property tax system that aims to fix leakage and rationalise the system
Under this system, properties are categorised into six clear and unambiguous heads which are residential (self use & tenanted), commercial, industrial, star hotels, exempted and fully vacant lands
The story so far
The Bruhat Bengaluru Mahanagara Palike (BBMP) has now halted the implementation of the new property tax regime fearing backlash from the citizens ahead of parliament elections.
The new system of levying tax is based on the guidance value of the properties, and has done away with zonal classification for tax and is expected to increase the collection. The government’s lack of intent to implement the policy immediately has also brought discontent among IAS officials in the BBMP who were behind framing of the policy to mobilise the revenue.
How is the new tax regime structured?
In a bid to streamline property taxation and ensure fairness, a new property tax system was introduce, according to the BBMP. The primary objective of this system is to simplify processes, rationalise taxation, and establish a fair framework by utilizing individual property guidance values rather than a single tax rate based on average values within an area.
Under the new system, properties are categorised into six clear and unambiguous categories which are residential (self use & tenanted), commercial, industrial, and star hotels, exempted and fully vacant lands.
This overhaul eliminates the previous sixzone structure and the complicated seven forms required for filing property returns.
Citizens in the new system are required to input their property details online, including plot or land area, builtup area, and the property’s designated use. Tax calculation is then based on the current guidance value applicable to the property.
Citizens have the option to question the displayed guidance value and provide supporting documents for correction online. The BBMP will review these claims within three months, with unaddressed claims considered accepted.
Notably, property tax rates were last revised in 2016, with a 20% increase for residential properties and a 25% increase for nonresidential properties. There has been no increase in rates over the past eight years.
What is the objective of new system?
The objective of the new property tax system is not to escalate the tax burden, but to simplify and rationalise the process. A maximum cap of 10% has been implemented for yearly increases on individual properties, said a senior BBMP official in the Revenue section.
The new system prescribes nominal rates to determine property tax as a percentage of the Guidance Value. A dry run conducted on over 18 lakh properties using the newly prescribed rates aims to ensure that the tax burden remains manageable, he added. According to the new system under residential properties, property tax for tenanted property will be 0.2% of the guidance value; for selfoccupied tax, it would be 0.1%; and for fully vacant land, it would be 0.025% of the guidance value. Under the nonresidential or commercial properties, property tax for nonresidential property (occupied) will be 0.5% of the guidance value, and for fully vacant land, it will be 0.025%.
What was the old system?
Earlier, the property tax was calculated based on five zonal classifications, with zones classified as ‘A’ having high guidance value bandwidth and ‘E’ having the least. According to BBMP senior official, this resulted in property owners in ‘A’ zone paying much more tax compared to owners having the same builtup area in other zones. The property tax was done through Self Assessment Scheme (SAS). The SAS was first proposed in the year 1990. In the year 2002 SAS was implemented by the then Bangalore Mahanagara Palike (BMP).
The format for the Self Assessment Scheme for property tax collection was presented at the Bangalore Agenda Task Force (BATF) summit on January 24, 2000, by V Ravichandar, which was endorsed by the then Chief Minister S.M. Krishna and implemented by Jairaj, the then BMP Commissioner, and Vasanth Rao, the then BMP Finance Head.
The first reclassification was done by BMP for three core city areas, West, East and South. It divided an area into five zones – A, B, C, D and E – with Zone A attracting the highest tax and Zone E the lowest in April, 2000. Later in 2007, Seven City Municipal Councils (CMC), one Town Municipal Council (TMC) and 110 villages were merged to form Bruhat Bengaluru Mahanagara Palike (BBMP). In 2008, rules were revised under various categories, and BBMP divides an area into six zones – A, B, C, D E and F. Most of the new areas which were added were classified under Zone F. The second zonal classification was done in 20162017. The details about the old system are provided by the BBMP. Under the SAS, the citizens had to voluntarily declare the area and builtup area of the property which they own.
According to Deputy Chief Minister and Bengaluru Development Minister D.K. Shivakumar, the SAS causes tax leakage as many citizens showed less than the actual property size and builtup area and many commercial properties were declared as residential. This made the BBMP to rethink the policy to rationalise the system.
Why some senior IAS officers are unhappy
A few senior IAS officials who worked on the new tax system are disappointed with the government for not implementing the new policy this financial year. A official said, “A team dedicatedly worked to revamp the tax system to fix leakage and not implementing it has undermined the team’s effort.”
How has the tax collection scenario been this financial year?
The BBMP for the next financial year aims to mobilise ₹5,000 crore from tax and ₹1,000 crore nontax revenue. This financial year, the BBMP has collected a record ₹3,900 crore which is about ₹ 600 crore more than the previous financial year. For this to happen, the BBMP started by sending SMS to defaulters, and pulled out BESCOM data to find out commercial establishmens which have been deceiving the authority by paying residential tax. The BBMP even shut down many commercial establishments to force them to pay. The civic body floated new onetime settlement payment scheme to encourage defaulters to make payments
This was initiated after Mr. Shivakumar directed the Revenue Department to come up with plans to collect more tax revenue. While emphasising on collection, the BBMP also came up with the new idea to fix leakage which was approved by Mr. Shivakumar. Unlike Mumbai City Corporation that gets a portion of share in the GST collected by the Maharashtra, the BBMP is largely dependent on its own revenues to run the city.