You are using an older browser version. Please use a supported version for the best MSN experience.

Will the ‘aam aadmi’ really benefit from Kejriwal’s house tax waiver proposal?

LiveMint logoLiveMint 11-04-2017 Ragini Bhuyan

With a lot at stake for the Aam Aadmi Party (AAP) in the forthcoming municipal elections in Delhi, the party has promised to waive house tax (or residential property tax) if it gains control of the municipal bodies of the city, likening its campaign promise to its concessions on water and electricity.

However, data suggests that unlike the concessions on water and electricity, which penalise those who consume more, the promise to waive property taxes will end up benefiting the rich at the expense of the poor.

As the name suggests, a house tax exemption will only benefit those who own a house. According to the 2011 census data, almost a third of Delhi’s population will be automatically excluded from any benefits under this scheme. It is to be noted that the percentage of house-owning households in Delhi is much less than the national average of 87%.

//datawrapper.dwcdn.net/mKJjQ/1/414px

Since house tax has a progressive structure (increasing with the size and value of residential property), a blanket exemption will benefit the rich more than the poor. Delhi house owners are a richer lot in comparison to average Indian house owners, and will gain from such a policy. A greater percentage of total households in Delhi (37%) have three or more rooms as compared to the rest of India (27%).

//datawrapper.dwcdn.net/LOuiU/6/414px

These numbers suggest that Delhi chief minister Arvind Kejriwal’s house tax waiver promise is targeted at placating the propertied class more than the aam aadmi (or ordinary citizen). Also, the consequences of such a promise goes much beyond a reversal in AAP’s class politics as it will damage the already fragile balance sheets of Delhi’s municipal bodies.

As an earlier Plain Facts series had pointed out, the fiscal health of most urban local bodies is very weak in India because of an inability to raise resources on their own. Property taxes accounted for around 15% of MCD’s total income of Rs6,683 crore in 2014-15, according to Janaagraha, a non-profit organisation working in the area of urban governance.

The low receipts from property taxes partly reflect tax evasion. Only about 35% of property owners in Delhi pay tax, with bulk of the revenues coming from rich enclaves which are charged higher rates. However, Delhi is not the only city that has been unable to generate adequate revenues from what is potentially a lucrative revenue source.

This year’s Economic Survey, a document released by the finance ministry, used satellite data to show that Bengaluru and Jaipur collect only between 5% and 20% of their potential property taxes. Across G20 economies, India ranks lowest in terms of the share of property taxes in the overall tax kitty, a 2013 report of the Centre for Budgetary Governance and Accountability noted.

//datawrapper.dwcdn.net/z2DSp/4/414px

Waiving off property taxes will thus be a retrograde step, which will weaken the finances of municipal bodies further, and prevent them from investing in and upgrading urban infrastructure. AAP and its leader Kejriwal claim that the campaign promise to waive house tax would not have an adverse impact on MCD’s finances. Such claims seem to contradict what the Delhi government run by the party was saying before the municipal poll campaign began.

A statement issued on 27 January 2016, articulating the Delhi government’s stand on the controversy due to non-payment of salaries to MCD employees, accused the BJP-controlled municipal bodies of not doing enough to raise revenue from property tax. “The fundamental problem with the Municipal Corporations is the fact that they have not paid any attention to generate their internal revenue resources. A case in point is that of property tax,” the statement said.

AAP seems to have traversed a long journey in politics since then.

More From LiveMint

image beaconimage beaconimage beacon