Property Taxes In India Are Progressive, But Poorly Leveraged
Municipal corporations and related authorities require revenue to operate and to take up development work across cities. While much of this revenue should come from property tax collected from the residents, but, unfortunately, despite rolling out certain waivers, introducing door-to-door property tax collection options at some locations and many incentives, most corporations fail to meet their targets. Under such circumstances, developmental plans remain only on papers. But did you know, property taxes could be taken up in a much more impactful way?
Shruti Rajagopalan, an assistant professor of economics at Purchase College, State University of New York, and a fellow at the Classical Liberal Institute, New York University School of Law recently wrote for a website where she points out the following. Property tax according to her is “economically efficient, incentive compatible, and progressive.” Here's how.
*It cannot be evaded, nor can it be moved or hidden. This means there is every possibility that a property owner must declare his ownership details.
*Every property owner is also watchful of how his property appreciates. Therefore, he wouldn't want to undervalue the price of his property as that would affect only him and his heirs. There are advantages in declaring the real cost of the property and so, property taxes could be a viable idea if efficiently targeted.
*Revenue is usually stable. This is because unlike income tax or sales tax where a higher tax could be demotivating, property taxes do not lead to a situation where real estate developers will just stop building or potential buyers will stop buying. As long as there are reasons such as investments for end-use and investment for gains, the property market will bounce back. Rajagopalan said, it “creates fewer distortions”.
*Although not as progressive as income tax, but, property tax is far more progressive than most other consumption taxes. “India has a very high percentage of home ownership, especially in rural areas. It will be important to design a progressive property tax system by classifying plot sizes, accurate land values and zoning data,” said Rajagopalan.
*Property taxes are a feedback, too, since these are levied by the local government unlike other taxes that are levied by the Centre. However, “the urban rich and middle class are able to exit the consequences of state dysfunction by buying into gated communities and private developments. Within these communities, individuals pay maintenance fees, which provide the same services that would be provided by a functional municipal system,” she added.
*The exits are costly, too. This could lead to the haves to demand better public conveniences.
*The 24.7 million homes that lie vacant today in India could also be a haven for black money. Property taxes make it costly for homebuyers to own multiple vacant homes and this helps in disrobing ingenuine actions.
Despite these benefits, the property tax to Gross Domestic Product ratio is merely 0.2 per cent.