Sad story of property tax leakage in Bangalore

While many property owners are accused of under-declaration, the civic body has failed to cross-verify 10 p.c. of properties every year.

This past weekend, a “sample” list of big property tax defaulters was made public by the Bruhat Bengaluru Mahanagara Palike (BBMP). Swanky shopping malls, well-known multinational companies and star hotels in the city all owe huge sums of money to the civic agency. The “default”, however, was not a straightforward refusal to pay tax but a matter of “under-declaration”, and further legal dispute over the calculation of tax.

This entire process of self-declaration and subsequent misrepresentation revealed through an official survey has been an oft-repeated exercise, and almost the norm since 2000, when the self-assessment scheme of the civic agency was first introduced. This leads to the crucial question: is the self-assessment scheme (SAS) sinking because of an unreliable public?

But it is also true is that the BBMP only goes behind big commercial properties to create a smokescreen of enforcement to cover up the lack of the mandated systemic cross-verification of 10 per cent of properties every year.

“In a move away from the inspector raj before, the SAS was built on the founding principle: trust the citizen to tell the truth rather than expect a revenue official to uncover a lie. Added to the trust part was another maxim: trust but verify. While the SAS came into force and citizens are doing their bit, it is the civic body which has now defaulted in not verifying. There has to be strict penalties and even jail terms for false declarations. In the U.S., for instance, many noted personalities have spent time in jail for wrong tax returns. Not one has been held accountable in the city,” says V. Ravichandar, who worked with the BBMP while formulating the SAS.

The SAS, when it came into force in 2000, had mandated a cross-verification of 5 per cent of properties every year, which was raised to 10 per cent in 2009-10.

By this logic, tax declarations of 45 per cent of the properties should have been completed by 2009, till when the random sampling was 5 per cent and in the subsequent years till date, with 10 per cent random sampling, another 70 per cent of the properties should have been cross-verified. Even considering the expansion of the civic body in 2007 and the new buildings that have come up during the period, a significant portion of properties should have been cross-verified by now.

“We have been conducting drives to survey properties that we suspect have under-declared every year. We recently completed one such survey from February to April, which uncovered huge defaulters. But we are not strictly following the 10 per cent rule. We are concentrating on bigger defaulters,” said Venkatachalapathy, DC (Revenue), BBMP.

While what the BBMP has uncovered is just a small indicator of the actual tax evasion, the lack of a systemic cross-verification process has only created a pervasive environment for under-declaration even in the residential sector which has till date not been held accountable by the BBMP.

BBMP property database not in order

Any hike in property tax, the Citizens’ Action Forum (CAF) has been consistently arguing, is punishing the law-abiding citizen for the incompetence of the BBMP to bring in all properties into the tax net and make the existing ones pay up their due share.

This year, the BBMP introduced multiple changes in the system from revision of the tax, re-classification of zones to revamping the online payment procedure. All very commendable changes, but they fell flat, leading to widespread confusion.

What ails the property tax system’s back-end is that the BBMP property database is not in order, reconciliation of yesteryear receipts and database is incomplete, and measures to widen the database has been resolutely resisted.

In 2013, when Siddaiah was BBMP Commissioner, the civic body asked for the RR numbers of electricity and water connection meters of the property while filing the property tax, in an attempt to link the property tax database with that of utility databases in the city. “Even properties that have remained out of the tax net would have taken utility services. Not just that, we had procured data from Bescom which gives various kinds of connections for residential, commercial and industrial use. Mapping this with property database with BBMP would have cleaned it up,” said Mr. Siddaiah.

He added that the BBMP had then signed an MoU with Visveswaraya Technical University (VTU) to conduct a resurvey and recapture data of all properties in the city matching that with the service utility databases. “The MoU is gathering dust,” he said.

Mr. Siddaiah, now a member of BBMP Restructuring Committee, is spearheading a pilot study of select wards in the city to ascertain the under-declaration and identify the loopholes. “As the BBMP Commissioner, I had seen variations in the range of 30 to 300 per cent,” he said.

V. Ravichandar, also a member of the committee, said that over the next eight months they would be assisting the BBMP to streamline their database and make it broad-based, by integrating data from service utilities and town planning departments of the BBMP. “We are working on the GIS system, assigning each property a unique ID using the latitude and longitude coordinates of the property. This will substantially weed out under-declaration too,” he hoped.

Property tax in Bengaluru is already subsidised’

While property tax across the State is calculated on the Capital Value System (CVS) i.e. the guidance value of land in the area since 2004, property tax in the city is still calculated based on the Annual Rental Value (ARV) system i.e. the Unit Area Value is calculated taking the rental market as the base.

“A rough calculation indicates that the property tax of a self-occupied property comes to around 15 days of rent per year. This is highly subsidised and there is under-declaration even in this. If the city moves to the CVS, the tax rates would skyrocket,” said a senior BBMP official.

Property tax pre-2000

* The local revenue officer used to inspect your property, assess it and fix the property tax.

* These visits and assessment by revenue officials were sources of harassment for the public, demand for bribe and other corruption.

April 1, 2000 – Self-Assessment Scheme enforced

* Property owners aided by guidance from the BBMP to self-declare and assess their properties, calculate tax and pay it

* BBMP to cross-verify self-assessment declarations of 5 per cent of properties each year. Deviations to be heavily penalised

* 2009: BBMP council resolves to increase the cross-verification of self-assessment declarations from 5 to 10 per cent

Cross-verification:

*From 2000–09 – 5 per cent: Ideally, 45 per cent of properties should have been cross-verified

*From 2009–16 – 10 per cent: Ideally, 70 per cent of properties should have been cross-verified

Even considering the expansion of the BBMP in 2007 and the new buildings that have come up during the period, a significant portion of properties should have been cross-verified by now.

No systemic cross-verification done

Modus operandi for property tax evasion

Out of tax net: Several lakh properties out of tax net. With BBMP town planning and revenue department databases not linked, even buildings with plan sanctions are out of tax net as no SAS done.

* GIS information: 12 lakh buildings in BBMP area – 22 lakh properties, including government properties

* BBMP tax net: 15 lakh properties

Under-declaration: properties under-declare the taxable area during SAS to evade tax. Random sampling surveys have shown variation in the range of 30 to 300 per cent.

* Many SAS declarations don’t include parking areas, balconies, service entrances, lobbies and other such areas.

Wrong declaration of type of use: Rented and commercial properties attract a higher rate of property tax, leading to concealment of this use of properties during SAS declaration.

* Rented properties have to pay twice the property tax of a self-occupied one. Rented properties are shown as self-occupied.

* Mixed use of commercial and residential in the same building is often concealed.

BBMP has not been concentrating on property tax reforms and its strict implementation on ground. Several lakh properties are out of the tax net. It has fallen into the trap of increasing tax to make law-abiding citizens to pay more to widen its base. There is immediate need for revamping the system and going for strict enforcement on the ground.

N.S. Mukunda, Citizens’ Action Forum

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Any free trust-based self-declaration system needs a strong and resilient regulatory framework for it to work. BBMP has implemented only part of the SAS scheme and has failed to implement that much-needed regulatory framework.

V. Ravichandar, one of the authors of SAS in 2000 and now a member of BBMP Restructuring Committee

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We have been conducting drives to survey properties that we suspect have under-declared every year. But we are not strictly following the 10 per cent rule. We are concentrating on bigger defaulters.

Venkatachalapathy, DC (Revenue), BBMP

Credits The Hindu

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