United Nations Public Service Awards Case Studies

Property Tax Reforms introduced in the Municipal Corporation of Delhi which is one of the largest municipalities in the world, has successfully balanced the twin objectives of revenue collection and political and socio-economic considerations by empowering citizens to self-assess their tax based on objective parameters. The new system which has already benefited about 10, 00,000 (one million) property taxpayers has the potential of benefiting an equal number of potential property taxpayers. The system is equitable, corruption free,transparent and has enabled public-private partnership through legislative changes.
The system has been introduced in a record time of just one year and ten months and has withstood the test of judicial scrutiny, analysis by the press and the electronic media and has gained mass public acceptability with the citizens of Delhi.

What is the initiative about? (the solution)
The outgoing rateable value system in the MCD was highly subjective and discretionary, whereas, the new Unit Area Method (UAM) ensures complete transparency in the procedure for assessment of property tax. UAM is based on measurable parameters, such as unit area values, multipliers factor for age, structure and use of the property, etc. These parameters are periodically revised by the Municipal Valuation Committee once in every three years. Citizen empowerment is ensured as the property tax returns are on self-assessment basis by the owner/occupier enabling removal of complaints of excess billings/ non-receipt of bills, etc. The tax burden under the new system is equitable and is based on parity. It ensures uniformity, standardization and rationalization of the property tax assessment in the MCD. The system is user-friendly and IT-enabled by using GIS technologies and Data Base Management Systems. It allows on-line filing of property tax returns and payment through the Internet by using Credit Cards. The new system has reduced instances of corruption caused due to earlier discriminatory subjective procedures. The new system has lead to complete elimination of red-tapism as delays in finalizing assessments have been done away with. The UAM ensures regulatory compliance due to certain built-in measures in the amendments to the Act including fixing the last date for claiming rebate for early payment/ provision for refund of excess tax/ provisions of payment of interest on delayed payments and penal provisions including imprisonment for non-payment of tax.

Who proposed the solution, who implemented it and who were the stakeholders?
1. 9th July 2002- Expert Committee on Property Tax Reforms set up. 2. 1st February 2003-Submission of Report of Expert Committee alongwith proposed legislative changes submitted to the Government of National Capital Territory of Delhi 3. 7th April 2003- Amendments to the Delhi Municipal Corporation Act paving the way for introduction of the Unit area Method of property tax assessment approved by Delhi Legislative Assembly 4.June 2003- Amendments get assent of President of India 5. September 2003 -Amended Act notified to come in force by the Lt. Governor of Delhi 6. October 2003-First Municipal Valuation Committee notified and set up under the amended Act 7. February 2004- Report of the Municipal Valuation Committee submitted to the Municipal Corporation of Delhi 8. 1st April 2004-The new Unit Area System of Property Tax Assessment Comes into force

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
While property tax is a fiscal instrument designed to raise the revenue for local bodies, it is at the same time expected to address a number of economic, political and social issues. The two objectives often may not be compatible and any reform of the property tax system has to carefully balance them. It was in this background that attempts for property tax reform were on since 1988 and a new simple scientific area based system was formulated and implemented w.e.f. 01.04.2004. The earlier rateable value based system of property tax assessment used notional property rental values as the base for assessing property taxes. While tenanted properties were assessed for tax based on the rent being reportedly fetched by them, rateable values of self occupied properties were assessed based on the cost of land and the cost of construction both of which itself were highly subjective parameters. Using rental values also presented a major challenge as rent control laws limited the scope for the notional rent to increase with changes in local demand and incomes, or keep up with costs of living increases. As a consequence, the tax base was stagnant, and an upward adjustment of tax rates was the only way to increase revenues from the property tax. A good tax system is one that produces adequate public revenue in an equitable and efficient manner. In addition to its capacity in terms of revenue generation, the property tax system can also be evaluated according to various other criteria. These include equity or fairness to the taxpayers, ease and simplicity of administration, neutrality with regard to resource allocation, harmony with the rest of the tax system, compliance and legitimacy, and accountability of tax officials. Revenue generation and equity issues should therefore go hand in hand and complement each other. The main drawbacks in the earlier rateable value system followed by the MCD were: • The system was by and large based on the cost of land and cost of construction. The market value of land varied according to the year of purchase, there was therefore a variation in the tax burden even for similar and similarly located properties. • Incidence of property tax in old well-established regular colonies was generally much lower than in the new unauthorized colonies even though the level of service in the former was far better than in the latter. • Long-term tenancies led to low valuation and there was no system for indexation for enhancement of tax unless a new transaction took place. • In some older city areas many properties came under the purview of Rent Control Legislation which limited the collection of property tax from low rent fetching properties and realization of tax from such properties was very low. • The absence of a well regulated real estate market most transactions (either in terms of rentals, construction or purchase) hid the real value of the property. Sub-letting, sub-division and collusive rent had also been hiding the actual revenue potential of the property. • Considerable discretion at the lower level of assessment and lack of transparency in the manner of assessment opened the doors to corruption. There was widespread public criticism of the lower level staff in this regard. • There was excessive litigation and consequent loss of revenue to the Corporation (it was estimated that about Rs. 3,000 crore of demand was under litigation) • In view of improper valuation of property and lack of buoyancy in the assessment process, the Corporation was constrained to raise rate of tax with a view to raising revenue from this source. This had put an undue burden on the honest taxpayers.

b. What were the key development and implementation steps and the chronology? No more than 500 words
The Union Ministry of Urban Development had made a study and recommended through a White Paper that Municipalities may switch over to area-based systems instead of the value based systems which were being followed in most municipalities in the Country. Consequently, the MCD after a series of deliberations passed a resolution in June 2002 proposing the introduction of the Unit Area Method that would reform the rateable value-based system of property tax. It was anticipated that it would simplify the assessment and collection of property tax, make it equitable as well as enable a balance between the twin objectives of revenue maximization and bring in political and socio-economic considerations. Simultaneously, it was felt that there was an urgent need for improving present tax administration with regard to the methods of tax assessment and collection. It was anticipated that the new system of property tax would be guided by the following considerations: • The proposed system should satisfy constitutional and legal requirements and stand the test of judicial scrutiny. • The existing inequalities in tax burden on similarly placed or similarly used properties should be removed. • The system should be transparent and the elements of subjectivity in assessment should be removed. • The valuation systems and tax rate system should be fixed for groups of properties, which are similarly placed, and not on individual property basis. • In arriving at the distinction between the different groups of properties, the parameters used should be based on clear statutory definitions or guidelines, which are not capable of being interpreted in a subjective manner. • Limit the use of discretionary power in respect of "classes of assesses" as against "individual assesses". • System should be simple so as to be easily interpreted by every assessee enabling him to file self-assessment tax return forms and pay taxes on that basis.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
The Union Ministry of Urban Development recommended through a White Paper that Municipalities may switch over to area-based systems instead of the widely used value based systems for assessment of property tax. The Government of NCT of Delhi constituted a Committee of Experts in order to consider various aspects of introduction of the Unit Area Method in the Municipal Corporation of Delhi. The Committee went through an exhaustive consultative process which included seminars, workshops and round tables for interaction with the resident welfare associations, stakeholders and interest groups. Other mass based unit area systems of assessment implemented in India and abroad were also studied. The Committee encountered three Strategic Groups each of whom had a vital role to play in the change process: 1. POLICY GROUP 2.CITIZENS BODIES 3.ASSESSMENT STAFF The Committee had to balance their interests often pitting one against the other. The policy making body of the Corporation coupled with support from the executive head, the Commissioner was firm in its objectives of reforms. Those in the higher levels of Government who were supporting the system were provided with GIS data, revenue simulation models and success stories of other municipalities to be able to counter those who were wary of the reform process and wanted the existing system to continue. The citizen groups who were appreciative of the reforms and wanted the change were pitted against the assessment staff for whom the change meant loss of power and authority. These issues were then picked up by the media to highlight the benefit of such reforms for the people.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
The UAM of property tax assessment has been hailed as a historic reform in the administration of property tax Laws. The system has resulted in: • Equitable tax upon similarly placed properties thereby removing a major anomaly of the earlier system where similarly placed properties paid widely different property taxes; • Transparency in tax administration since the new system is based on objective parameters of unit area values and factor multipliers; • Empowerment of the citizens to self-assess their tax; • Removal of red tape and corruption as it has eliminated any scope of discretion and delay in finalizing assessments; • Honesty in the citizen civic body interface as there is no scope for collusion between the municipal staff and house owners; • Promoting welfare considerations by providing concessions for special categories such as senior citizens, women owned properties, handicapped persons and ex-servicemen; • Reduced necessity of physical inspections as the new system is IT-enabled, software-driven and supported by GIS maps. The system provides for allotting a unique property identification code number (PIC) to each property which is similar to the PAN in income tax; • It provides stability, continuity and buoyancy, as the Act provides for a Municipal Valuation Committee to be set up every three years, which would revise the unit area values and the factor multipliers and may re-categorize the jurisdiction through a consultative process involving the citizens, etc; • Reduced litigations due to transparent and clear time-bound assessment procedures. The system also provides for an alternative mechanism for settling disputes relating to assessments as the system provides for setting up a Municipal Taxation Tribunal thereby obviating the need for the citizens to approach the Courts and getting into protracted and expensive litigation process; • Providing an option for public-private partnership initiative by the Corporation as the Act provides for utilizing the services of a private sector agency/ citizens bodies for administration and collection of tax; and • The amended DMC Act provides that if for any reason, the base unit area value of any vacant land/ building has not been revised on the completion of a period of three years it shall be lawful to increase or decrease the base unit area values according to the changes in the consumer price index of urban non-manual workers (CPIN) or such other suitable index as the Government may determine till such revision is made by the Municipal Valuation Committee.

Is the initiative sustainable and transferable?
Property Tax Reforms implemented in the Municipal Corporation of Delhi which is one of the largest municipalities in the world, aims to balance the twin objectives of revenue collection and political and socio-economic considerations by empowering citizens to self-assess their tax based on objective parameters. The new system introduced w.e.f. 1.4.2004 has benefited more than eight lakh property taxpayers, is equitable, corruption free and transparent and has enabled public-private partnership. The system has now stabilized and the categorization of colonies/areas/localities of the unit area system is being used by various agencies including the Supreme Court of India for deciding commercial use in residential areas, by the DDA and the Delhi Government for fixing land rates for stamp duty and the Delhi Jal Board for determining water cess thereby cutting across sectors. It is also probably the first urban taxation system to safeguard gender concerns by providing a tax rebate of 30% to women owned properties with a view to economically empower women by encouraging transfer of property titles to women. The very fact that that the number of litigation cases in the new system has been reduced to a mere 12 from the thousands of cases (involving revenues of near about Rs. 3000 crores) pending in various courts under the previous system coupled with the increase of about two lakh taxpayers over the past three years, voluntarily filing their property tax returns shows the mass public acceptability of the system. This together with awareness drives and other administrative and enforcement measures being pursued by the Municipal Corporation of Delhi would take care of the revenue concerns which are already showing a rising trend as per the current years collections upto November 2006 which have increased to 511 crores from 374 crores (an increase of about 36%) vis-a-vis the previous years collections for the same period. The recommendations of the second Municipal Valuation Committee are also expected to generate buoyancy in revenue collections by indexation of the tax base to the increased cost of services during the past three years of the operation of the new system. It is anticipated that with the inclusion of new properties in the tax net and proper administrative and enforcement measures in place the system would become revenue surplus in time to come and the reforms which have already benefited over 8 lakh property owners/occupiers presently paying tax would be a blessing for another one million or so potential taxpayers. Based on the successful implementation of the unit area system of property tax assessment in Delhi many other cities in the country have shown a keen interest to introduce such a system, prominent among which are Kolkata Mumbai & Jaipur. The categorization of colonies/areas/localities has been adopted by other departments of the Government of National Capital Territory of Delhi including the revenue and water supply departments for levy of stamp duty rates and water tariffs. In fact the categorization criterion has also been used by the Courts to determine commercial usage of properties in residential areas.

What are the impact of your initiative and the lessons learned?
The Committee was severely constrained by the lack of data on the total number of properties in Delhi, covered area of such properties and other features such as age of property, the availability of civic and social infrastructure in the localities which were of immense relevance for categorization of the entire MCD into homogenous groups for the purposes of assessment of taxes; and developing a revenue simulation model both of which were essential for developing the new system for the city of Delhi. The following innovative solutions were adopted by the Committee: (i) Division of Municipal Areas into categories The Committee in its analysis of the unit area systems in other cities found that in most cases capital value of land or rental values have been used for the purpose of classification. However lack of a proper real estate market and suppressed rentals prevented the use of these parameters for classification of colonies/areas/localities in Delhi. Besides, it was felt necessary to capture all aspects of the general development of the colony, which would include factors like availability of physical infrastructure, social service, economic status of occupants, etc. A Sub-Committee was constituted for the purpose which mapped the 1,908 colonies/ areas/ localities geo-coded and plotted them on the digital map of Delhi. These were then classified into seven categories on the basis of ten factors viz. estimated capital value of land, prevailing rental values, the age of the colony, the physical infrastructure, the level of services, the street on which the colony is located (approach to the colony), type of colony (planned or unauthorized), economic status of occupants and the geographical location of the colony. A classification matrix was devised. The factors were graded ‘A’ to ‘C’ based on the specific characteristics of each parameter. The grade scales were converted into a point scale and the colonies were placed in descending order of ‘A’ to ‘G’ on a scale of 100 points. (ii) Assigning a Unit Area Value to each such category for assessment of tax and developing a revenue simulation model Data on proportion of residential, non-residential and tenanted properties; annual rental values; current tax demand and covered space of properties presently being assessed to tax was obtained from MCD records. In addition a random survey of 10 percent sample sizes of the properties presently under assessment was designed and carried out. With the use of this sample data and other information provided by the MCD, a computerized revenue simulation model was designed and developed. GIS maps and software to study the impact of alternative tax rates and differential between categories of colonies was studied. The Committee used aerial maps and GIS data for computing the covered area based on the total area of Delhi, rural areas, open areas for roads, drains and parks etc. and a revenue simulation model was developed.


Institution Name:		Municipal Corporation of Delhi
Institution Type:		Government Agency
Contact Person:		Surbhi Varshney
Title:		Ms.
Telephone/ Fax:		2984 5005
Institution's / Project's Website:		2983 4712
E-mail:		mvc.secretary@mcdonline.gov.in
Address:		Property Tax Building Ring Road Lajpat Nagar o/o MCD New Delhi
Postal Code:		110024
City:		New Delhi
State/Province:		New Delhi
Country:		India

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information