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Practice Details

 
Title of Practice: Area Based Assessment of Property Tax in Patna, Bihar (India)
Year: 2002
BPTag: Award Winner
Reference Number: IND180
City / Town / Village: Patna, Bihar
Region: Asia & Pacific
Country: India
Has this practice been submitted previously? No
Previous Title:
Address: Municipal Corporation of Patna, Bihar (India)
Mr. S.K. Singh, Director (Housing & Local Self
Government), Ministry of Urban Development & Poverty Alleviation, Govt. of India, Nirman Bhavan, New Delhi-110 011
Tel: 91-11-3017295
Fax: 91-11-3014459
Email: sksingh@nb.nic.in
Name of Contact Person: Mr. S.K. Singh, Director (Housing & Local Self Government), Ministry of Urban Development & Poverty Alleviation, Govt. of India, Nirman Bhavan,
Email of Contact Person: sksingh@nb.nic.in
Summary:

Area based assessment method as initiated in Patna Municipal Corporation has emerged as a legally tested, administratively tried and practically feasible method of property tax (PT) assessment in India. The Patna model presents a simplified assessment procedure based on a three-type classification of Location, Construction and use. This has minimized discretion and ad-hoc nature of assessment and has increased acceptability by assesses and tax compliance;The model also has prompted the stakeholders involved in the areas of Municipal Finance such as Central/State Government, urban local governments and political and official functionaries to replicate it in a wider context.


The model initiated in 1993, Patna Municipal Corporation has facilitated reduction in tax rate from 44% to 9% of Annual Value. Despite the reduction the current demand of PT had gone up from Rs.40 million to 170 million. To begin with the model was initiated in 1/27th part of the Patna City which now covers half of the City under new system. It has demonstrated a potential of 10-time increase along with a drastic reduction in the rates. The model has earned legal sanctity from Honorable Supreme Court of India on the grounds of reasonableness and fairness.


Other Corporations of the State of Bihar have already adopted the Patnamodel. The Government of India also has issued guidelines to state governments to modify their assessment procedure of PT in line with Patna model. The state government of Uttar Pradesh has already issued notification to enable urban local governments to modify their assessment to area based method. The government of Madhya Pradeshhas also modified its assessment procedure. Government of Tamil Nadu has made legislation on the basis of Patnamodel of taxation.


Finally, the model bring additional money in the kitty of municipal governments along with equity, fairness and acceptability by people and enables them to take better care of their citizens on account of basic services, safe environment and preventive health.

Key Dates: (i) Revised Assessment Rates-August 12 1993 (ii) Decision by Patna High Court withholding the new system - 1994 (iii) Decision by Supreme High Court upholding the new system - 1994 (iv) Revised of the Property Tax – The Revised Demand -1993-94
Norminating Organization Details
Name of Organization: Ministry of Urban Development and Poverty Alleviation, Government of India, New Delhi
Contact Person: NOT PROVIDED
Type of Organization: Central Government

Partners:
Name of OrganizationAddressContact PersonOrganisation TypeType of Support
State GovernmentNOT PROVIDEDNOT PROVIDED, NOT PROVIDEDCentral GovernmentPolitical Support
MediaNOT PROVIDEDNOT PROVIDED, NOT PROVIDEDMediaOther
Community Based OrganisationsNOT PROVIDEDNOT PROVIDED, NOT PROVIDEDCommunity-Based OrganisationOther

Category
Gender Equality and Social Inclusion
Technology, Tools and Methods
Urban Governance

Narrative:

Situation before the initiative began

Before the initiative began in 1992-93, Patna Municipal Corporation applied rental value method for levying property tax in the city.Annual Value defined as gross annual value rent at which the holding may reasonably be expected to let as per Patna Municipal Corporation Act in 1951,was the basis for assessment. This had the scope of discretion and the tax inspectors were making assessments inconsistently and irrationally. The prevailing rate in the Patna Municipal Corporation was also fairly highbeing43.75%. The Property Tax family included five taxes/cess namely: Holding Tax,Latrine Tax, Water Tax, Education Cess and Health Cess. The high rate of taxation gave rise to more arbitrary and unreasonable assessment by the tax inspectors leading to corruption and unscrupulousness.

Establishment of priorities: The matter was discussed with the officials in the Revenue Wing of Corporation. It was noticed that discretion and objectiveness in the assessment has to be minimized. Unit area method emerged as a suitable alternative to rental value method. It was also considered that legal and administrative hurdles along with popular resistance are to be removed. Specific steps were planned by the Commissioner in consultation with other stakeholders such as:

·                    Notification has to be issued by the State Government to enable adoption of new method.

·                    State Government has to be pursued to take up amendment

·                    Popular support for the change has to be generated

·                    Rates of Property Tax need to be slashed

·                    Municipal staff has to be exposed to modalities of new system

·                    Awareness campaign and media exposure has to be launched


Formulation of objectives and strategies

It was decided to adopt area-based method for assessment of Property Tax. Owing to the complexity of the issue, it was decided that the new system would be introduced in a phased manner.

Proposed notification was prepared in consultation with legal experts and other concerned officials as well as critical analysis of unit areas method as applied by cities and towns in India and elsewhere. To reduce the discretion in the hands of the assessor, it was decided to use three main indicators for fixing the rent-able available. These are: (I) location, (ii) type of construction and (iii) use. A table was developed giving these parameters of which assessment can be made on a property located in the city. To ensure adaptability of the new system among the people,it was also decided to reduce the property tax rates from 43.75% to 9% of Annual Value.


Mobilization of resources

To begin with the State Government on August 20, 1993issued the notification which incorporated the assessment procedure on the basis of location, construction and use.

·                    the most important clause of the notification is that the annual rental value means the rent that a holding is capable of fetching over a period of one year. The notification also included the reduction of tax rates.

·                    Asia second step, the municipal staff was exposed to the modalities of the new system.

·                    Survey of properties was conducted to compute average rent to develop the table of rates as per different attributes.

·                    Subsequently specific area was earmarked for application of unit area method.

·                    The staff carried out survey of properties in terms of its size, location, use and construction and finally assessment was made on the basis of table on selected indicators

.

Process

Commissioner launched a consultation and awareness process. It included structured and informal meetings with the Political functionaries, Government officials, legal experts and local leaders and public awareness through print and electronic media. It paved way for following steps:

·                    the new rules were framed to lay down definite criterion for assessment of tax which included (I) location of holding, (ii) use of a holding (iii) type of construction and (IV) measurement of the carpet area.

·                    for defining location of a holding, the different areas of the town were classifieds on principal Main Road,Main Road and all other roads not falling in the first two categories. For ascertaining the use of holdings, the buildings were assorted into three groups,(i)Commercial or Industrial Holding, (ii) Residential Holding, and (iii) all other holdings not falling in the first two categories.

·                    Properties were classified under three categories of use namely (i) fully commercial/industrial;(ii) fully residential; and (iii) others.

·                    For specifying the type of construction, the buildings were classified into three categories namely; (i) Pucca with RCC; (ii) Pucca building with asbestos or corrugated sheets and (iii) others.

·                    Thus it becomes a matrix of three multiplied by three multiplied by three table(table annexed)

·                    The Corporation notified the rate per square feet. In Patna,Twenty-four Principal main Roads,Eighty-eight Main Roads, and the rest were notified as other roads. These rates were fixed on the basis of guide survey and informal discussion with the residents of selected area.

·                    Assessment was done with the help of 19 probationers from State Administrative Service.

The rules were challenged in the Patna High Court in early 1994. The Division Bench in its judgment appreciated the idea of determining the ARV. But the High Court invalidated the rule on the ground that they violated Article 14 of the Indian Constitution and suggested a larger classification. In the High Court S.K.Singh contested the case.

The State of Bihar and the Patna Municipal Corporation (PMC) challenged the correctness of the High Court decision in the Supreme Court. The Supreme Court struck down the High Court judgment in 1995 saying that the new system was being designed with good intention and it must be allowed to continue. It was indicated that a larger classification if evolved would be too complex and elaborate, it would leave too much discretion to assessing authorities elimination of which is one of the main objectives of the rules. Court also noted that of the assessment rule does not entail undue burden on urban taxpayers. The Supreme Court further said that a new system with good intention is designed in the interest of the body of house-owner taxpayers as well as the Corporation. This judgment not only allowed PMC to go ahead but also paved way for replication of Patna Model.


Results Achieved

Patna Case provided a model method for adoption of area-based method for assessment

·                    Itis simplified method which is legally tested, administratively tried and practically feasible

·                    It has brought transparency and reasonableness in assessment, minimized discretion,eliminated time consuming process whereby assessee has to furnish details on-cost, rent, furniture, fixture etc. increase the municipal revenue;provided scope for revision; has longer acceptability; introduce new rates leading to better tax compliance

·                    Specific results obtained by the Patna Municipal Corporation are as follows:

 

Achievements of Patna Model

 

Before revisions

After revisions

Early definition of Annual Rental Value: the gross annual rent at which the holding may reasonably be expected to let

 

Earlier rate o taxation: 43.75% of ARV

 

Higher rate gave rise to: arbitrary and unreasonable assessment by inspectors;

 

 

Corruption and unscrupulousness

 

Property Tax Demand: Rs.4 crores

Under new rules ARV is redefined as the rent that a holding is capable of fetching over a period of one year

 

Rate of taxation reduced to 9% of ARV

 

Lower rates coupled with simpler rules: has eliminated any scope for discretion of tax inspectors:

 

Have been acceptable to people at large

 

Property Tax Demand: Rs.17 crores

Estimated to grow to Rs.40 crores if estimated properly


Sustainability

·                    The Patna model has improved the municipal revenue substantially. The current demand of Property Tax within the area under new method has gone up from 4 crores to 17crores.

·                    The Property Tax collections in Patna has also gone up from 10.4 million in 1992-93 to 37.8million in 1997-98.

·                    It has also enable the city government to have more revenue and to transferthepu7rcahsiung power in favor of poor with regard to access to services through improved provision of basic amenities including the safe environment.

·                    Gradual adoption of new method has enabled the city government to have a team of skilled assessors to replicate the method to other areas.

·                    New method has brought equity in the assessment.


Lessons Learned

·                    The Patna Model has demonstrated that Property Tax has the potential to provide more revenue to the city governments. It has the capability to fetch value-added role of municipal services which is reflected in the increasing capital value of properties as a result of municipal service provision.

·                    The model also demonstrates effective urban governance, which means participation by all the stakeholders. In this case, cooperation was achieved from citizens,professionals, officials, state government and media.

·                    It has also noted from the Patna Model that given an administrative will,structural changes are possible within a town and positive cooperation can be achieved from the state government and other stakeholders.

·                    The model has also provided technology and tools to enable the city government to apply area-based management for property tax assessment.

·                    Model also provides a tried and tested (particularly on legal grounds) method of assessment

·                    The model presents a simplified method with minimum complexities. It was a result offered back and critical analysis of other methods applied among some of the Indian cities e.g. Andhra Pradesh has seven attributes for location and seven for construction, which complicates the assessment and brings ‘discretion’ into it.

·                    The model has increased awareness among media, citizens, professional and functionaries.The Indian think tank, comprising of senior professionals and officials from research institutions, government organizations and international agencies, has critically examined, evaluated and assessed the model as part of various seminars, workshops, research reports and other documents.


Transferability

·                    It has paved way for wider replicable and adaptability of area-based assessment. It has ensured legal sanctity of area-based method and brought practically feasible and simple technique to assess the annual value of a property.

·                    The Patna model has prompted Govt. of India to issue guidelines to state governments in the country to encourage municipal bodies  to apply area-based method in line with new method.

·                    The model is being replicated by neighboring cities within the states of Bihar to apply an area-based method.

·                    Uttar Pradesh,the largest state of the Indian Union has already issued notification to enable city governments to apply area-based assessment.

·                    The states of Tamil Nadu and Madhya Pradesh are on their way to incorporate Patna Model.

·                    United Nations Centre for Human Settlement in its publication ‘The State of the World’s Cities’ has acclaimed the area-based assessment of Property Tax of Patna Model as one of the best practices.

·                    The Parliament of India in its proceedings dated 4.12.2001 has lauded the Patna Model of area-based assessment.

·                    The press has appreciated the model and qualitative magic formula.

 


References:
I.Guidelines for Property Tax Reforms indicating Patna case as a model for revision of PT assessment Procedure Government of India, Ministry of Urban Development during October, 1998.
II.Comments by Planning Commission, State Government and Important Cities on Out Area Method along with a Reference to Patna Model – August, 1998.
III.Supreme Court Judgement on Patna Model – 16.1.1995.
IV.A Much Acclaimed Tax Structure – The Hindu, 2nd September, 1995.
V.Magic Formula Raises PMC Revenue – Times of India, January 2nd, 1994.
VI.Other States to Follow Magic Formula on Tax Collection (Hindi Language) – Nav Bharat Times, 26th February, 1994.
VII.PMC’s Magic Formula for better Tax Collection – Hindustan Times, 26th February, 1994
VIII.Magic Formula Helps Raise Revenue – Indian Express, 3rd January, 1994
IX.Magic Formula Raises Revenue – The Statesman, January 2nd , 1994
X.Magic Formula Raises PMC Revenue – Indian Express.
XI.Centre favours Patna tax model-The Hindu, 31st December, 2001
XII.India writes it off but for United Nations, Patna is hot property-The Indian Express, 29th August, 2001
XIII.UNCHS’s publication ‘The State of the World’s Cities-2001’.

Supporting Material:
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