Throughout their election campaigning, two of the major political parties in Karnataka, the Congress and the BJP said they will review the Capital Value Scheme (CVS) for taxing properties in Bangalore. Their representatives said so in various meetings held with different citizens’ groups.

Screen shot of a section of the home page of the BBMP website’s www.bmponline.org. A message on paying property taxes runs from right to left on top of the screen.

"Most of the parties have come out against the scheme," says Col. Mathew Thomas, general secretary of Citizen Actions’ Forum (CAF). However, "Only the BJP has made it part of their manifesto," he adds.

The fate of CVS-based property taxation in Bangalore is one of the issues the new BJP government in the state will have to decide on priority, since it impacts revenues for the Bruhat Bengaluru Mahanagara Palike (Bangalore municipality corporation or the BBMP). The muncipality has been suffering a drop in revenues.

The CVS scheme was to come into effect from 1 April this year but citizens’ groups came out very strongly against the move. Their concern was that it would lead to a substantial increase in property tax across the board. Governor Rameshwar Thakur then stayed its implementation, in the absence of a popular government.

BJP legislator and former minister R Ashok opposed the scheme categorically in a meeting called by CAF just before the elections were announced. "This kind of increase in tax is not acceptable. We are opposed to the scheme and will make it part of our manifesto for elections," he said, during campaigning.

Talking to Citizen Matters before the election results, Ramalinga Reddy (INC) reiterated his party’s committment to respond to citizen concerns. "We are definitely going to review the scheme," he said. "We had led a delegation to the governor opposing the scheme after which it was stayed," he added. Reddy is a former minister and a long-time Jayanagar-MLA who won his race this time from the BTM Layout constituency.

In a earlier meeting on the vexing issue, Citizens Action Forum (CAF) president N S Mukunda, opposing CVS for Bangalore, said that the new scheme would lead to an increase in tax by 2 to 10 times. Use of guidance value to calculate the tax rate was erroneous; he contended as guidance value is only notional and does not yield any returns to the owner except when the property is sold. Instead of tinkering with the tax rates, the BBMP should map all properties and bring them into the tax net, he added.

A fallout of increased rate of taxation would be gentrification of the city, worries Col. Thomas. The only option for some would be to sellout and move to cheaper areas. CAF has proposed that special groups like senior citizens, ex-servicemen and physically challenged should be protected and the rates for these groups should be frozen at present levels.

Bangalore’s property tax revenues – a messy history

The history of property taxes in Bangalore is quite complicated and important to note. According to the government, the self-assessment (SAS) scheme based on Annual Rental Value fell out of favour since it is subjective and led to lot of litigation. The Supreme Court later asked the state government to follow the Karnataka Rent Control Act, 1961 to determine the value. However this Act did not have a provision to revise the rent as per the market value as a result of which tax was being collected based on rental values that were three decades old.

Later the courts intervened again and asked the government to correct this anomaly and therefore another law, the Karnataka Rent Act, 1999, came into being which made the provision to enhance rent every year and defined rent as 10 per cent of capital value which is based on actual market value of property. Property tax rates were then fixed at 1.66 per cent of capital value which worked out very high compared to the taxes being paid till then. The rate was therefore slashed to 0.3 per cent of the estimated capital value in the new scheme.

However, property value in Bangalore has shot up manifold in the last five years and that is where the problem arises. BOX

Former deputy commissioner of BBMP, H B S Aradhya, who was involved in formulation of the CVS scheme, talked to Citizen Matters on the genesis of CVS. He says that in the early 90s, Patna initiated a similar scheme which was based on "Unit Value". When that scheme was implemented, citizens went to court. Taking congnizance of the complaints, the Supreme Court had then suggested to the government of India that in the absence of any norm, why not look at capital value as the basis of formulating the tax.

After examining the issue, the GoI then issued a directive in 1994-95 to all city corporations in the country to consider this as the basis of property taxation. "In 1995, Mr Ravindra who was the administrator (Bangalore corporation), recommended to the state government (Karnataka) to switch to a CVS-based system," says Aradhya.

However, the Self-Assessment Scheme (SAS) was itself approved in 1998 in the state. Even at that time, elected representatives asked us why guidance value cannot be taken into consideration for assessment since fresh guidance values had been issued, says Aradhya. The amendments to bring in CVS were passed in 2003 by the Congress government. But by then, SAS was already to be implemented in Bangalore for five years ending March 2005. So the city corporation (then called BMP) could not implement CVS here, while all other corporations in the state took it up, says Aradhya.

Now, time for decisions

Aradhya says that with the CVS scheme, more tax will be raised from areas where property values are higher now. "But the new scheme is more fine-tuned than the earlier SAS," he says. Provision in the amended Corporation Act allow the city to levy different rate of taxes for different areas, he says, though flat rates have been proposed in the current avatar of the CVS scheme. "Earlier the city was divided into six zones based on guidance value. Now every street will be considered for it’s guidance value," he says.

But he admits that some sections of the propertied public may not be able to meet a steep increase. Certainly, "Affordability and acceptability has to be considered in fixing the rate," he says, indicating that the new government will have to consider these questions too.

Aradhya also does not entirely agree with the citizens’ claim that only 40 per cent of properties in the city are taxed. "That is an exaggeration," he asserts. "About 7 lakh properties are currently registered in the old BMP areas. There are another 1 to 1.2 lakh which has not been assessed or cannot be assessed since it belongs to defence and the corporation. About 20 per cent of properties come under slum boards which cannot be assessed because they haven’t been given "hakka patras." These lands have been occupied without any documents," says Aradhya.

What about the new areas that have merged to form the BBMP? "In newly added areas only 30 to 40 per cent have been assessed." he admits. "That is because the government has asked not to assess revenue areas. The government has to understand that people especially from the poor and lower middle classes have purchased sites and have been living in these areas for last 15 years. They have to be assessed. The government has to fix some conversion charges and get the issue resolved," says Aradhya.

Now that there is a new government, citizens are waiting with their fingers crossed.

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