As urban economic activity increases and digital assessments grow, municipal corporations (MCs) of some States have leveraged property taxes more than others to drive overall revenue of the urban local bodies (ULBs).
Between FY19 and FY24, the MCs of the top States by GSDP (and UT Delhi) recorded a CAGR ranging between 3 and 26 per cent, per analysis of data from RBI report on municipal finances. Among these, Delhi, Rajasthan and Tamil Nadu registered the highest CAGR of 26 per cent, 23 per cent and 23 per cent in this tax revenue. West Bengal saw the lowest CAGR at 3 per cent.
Property taxes are a major source of own tax revenue for municipal corporations. On an all-India basis, this tax makes up for more than 16 per cent of total revenue receipts of the MCs and around 70 per cent of their own tax revenue. For FY24 (BE), five out of the top 10 States received more than 25 per cent of their total revenue receipts from property taxes.
GCC presence helps
“Tamil Nadu and Andhra Pradesh have seen increased economic activity due to a larger GCC presence in both States with Tamil Nadu also continuing to be the automobile hub. Rajasthan has continued to have a tourism focus with a lot of economic activity stemming out of this focus,” Vivek Iyer, Partner, Grant Thornton Bharat, said. The NCR region has also always seen strong property tax collections due to its government presence, he added.
In terms of contribution to total revenue, property taxes made up half (50 per cent) of the total revenue of Telangana’s MCs in FY24. Karnataka at 43 per cent, Andhra Pradesh at 35 per cent, and Tamil Nadu at 27 per cent are the other toppers. Maharashtra’s MCs, the richest in India, are more well diversified with just 11 per cent revenue from property taxes.
The variation among States is due to differences in tax rates, collection efficiency, and economic situation. States are also at different levels of implementation of the AMRUT 2.0 scheme, which lays down ULB reforms including those relating to property tax collection.
Per media reports, Tamil Nadu hiked its property tax rates in the range of 25-100 per cent in April 2022. Recently, in September 2024, Chennai Corporation also passed a resolution hiking property tax rate by 6 per cent. Similarly, Telangana has tweaked its calculation of property tax to base it on market capital value instead of annual rental value. On the other hand, Maharashtra’s MCs have kept their property tax rates unchanged since FY16, with the 5-year CAGR in collections standing at around 10 per cent.
Public infra boost
Anuradha Basumatari, Director, India Ratings, said MCs can reduce dependence on grants by establishing public infrastructure such as parks, libraries, healthcare facilities, parking space, etc and implement a system of charging relevant user fees for these. “They can also boost own-source revenue by strengthening collection mechanism and efficiency around tax and non-tax revenues,” she added.
The other tax revenues of MCs include water tax, electricity tax, education tax, and others. Non-tax revenue are user charges, development charges, trade licenses, and other fees. Taxes levied by the State government and shared with the local bodies (such as entertainment tax) and Central and State Finance Commission grants are other sources of revenue.