What Ails Property Tax in India? Issues and Directions for Reforms

Abstract

Property tax is the most important municipal tax in India. Theoretically, property tax subscribes to efficiency, ability to pay, benefit and equity principles of public finance. However, it is grossly under-exploited. The reasons why the potential of property tax is far from being realized include systemic problems and inefficiency in municipal tax administration. Considering the importance of property tax for municipal autonomy and its huge unexploited potential, property tax reform in India assumes critical significance. This paper attempts to look to theory and international practice, including innovative initiatives launched by select cities and states in India in the past for designing and pursuing a robust agenda of property tax reforms. In particular, it critically examines the property tax performance of two pioneering municipal corporations: Hyderabad and Bengaluru. We suggest municipal reforms with a focus on user charges for measurable services, move to capital value-based property tax with land tax component linked to the market value of land, tax mapping and benchmarking, addressing tax base, exemptions, coverage, valuation and collection efficiency.