Thursday, November 27, 2014

LBT Vs City Development!






Deficit:  What you have left after paying your taxes…. Arnold Glasow.

An American businessman and humorist; Arnold was cited frequently in the Wall Street Journal, Forbes, the Chicago Tribune and many other major organs. The witty businessman has summated the entire taxation rather financial functioning of any organization is just one sentence & that’s why he is one of the all time greats in finance world!  Well, I am not a finance guy rather taxation is one thing I am still trying to understand even after so many years in the business & I am sure there are thousands or millions of alike me around! So when my writing idol Mukund Sangoraam, who is editor of Loksatta & whose editors columns has been inspiration for my writing, called me up about asking me someone who can write an article about the infamous LBT & models of revenue generation for other city’s councils around the world i.e. like we have municipal corporations, I referred name of few of my friends in the field who can write about the subject. We did discuss few aspects of the subject & he hung up. Yet the topic remained in my mind as its background is somewhere related to the city & in indirect way to the real estate of the city! Agreed, I won’t be able to analyze the LBT or any tax module as that’s job of a financial men & we have many around yet as a common citizen of the city, I am always curious about the functioning of the system which we call PMC i.e. Pune Municipal Corporation & which is supposedly responsible for the entire infrastructure; rather infrastructure is just one aspect, its entire well being of the city. It engulfs right from education to traffic to every essential service an urban citizen needs to the planning of growth of the city. In nutshell job of PMC for the city is like managing a home where the head person of the family has to think of earnings of the family & balancing the same with the needs of every family member for its living in good state.

On this background a common citizen is always confused just the way I am over the news like Municipal Corporation Staff will go to strike if LBT is waved of as was promised by the present state govt & on other side the trading community, popularly quoted as “wypari warg” i.e.  Business men who majorly are shop keepers from all sort of commodities, will be going on strike from 31st Dec; if the LBT is not waved off! Interesting, isn’t it? So what’s LBT in first place & why it has become so vital for our beloved Pune city suddenly? On a very general definition LBT is local body tax, means on any sale of a commodity in the city limits, some percentage of the sale amount has to be paid to the local body which in our case is PMC. This money is supposedly to be collected for the day to day operating of PMC as well it’s the major revenue for the services i.e. infrastructure which PMC is supposed to provide its citizens. Here many will ask how the revenue was being generated before then, when LBT wasn’t there. Then there was famous “Octroy” i.e. “Jakat”, which was imposed on entry of any domestic goods to be utilized within the PMC limits. It was charged again on basis of some percentage of the purchase receipt value of the goods. But then it’s outdated system of revenue & has been removed from most of the cities in the country & to my knowledge it was another condition put of PMC to remove Octroy for getting funds from central govt under various schemes like JNNURM, a central govt funding scheme for the urban cities! And then the system of octroy was always in grey shade i.e. the way it’s been implemented & the way few people were operating as octroy agents & can get anything in the city without paying nothing or minimum octroy on goods. Whatever was said about the octroy yet it contributed to nearly one third of the revenue of the PMC budget & as it’s removed the PMC required to have another option to fill up the hole in their pocket by removing octroy & here comes LBT in picture!

As octroy was contributing nearly one third of the entire revenue of PMC, it came up with LBT from the traders in the city & this is what being opposed now. Now let’s see first why PMC needs the money in first place? To run a city of size Pune is huge task, it’s like running a large industry as city needs services right from road to drainage to water supply, public health, education, recreation & many such. And all these services needs money on two fronts, first is for keeping them in operation i.e. salaries of the doctors & all the staff as well teachers in municipal school & along with salaries of the staffs in administration in various departments. At the same time to keep the services in operation we need electric supply & lots of maintenance material & all this needs money. Public transport is also funded through the revenue only. Second is city is ever growing so new infrastructure has to be added always & that needs money for acquisition of the land for the same as well construction cost of the services like roads, drainage treatment plants, water treatment plants, school as well hospital buildings, roads & the list is on. Now we are talking about Metro & it will also need thousands of crores of rupees, so from where all these money is going to come? And ultimately all these services are what make life of a citizen good, which is in the end buyer of real estate industry.

Let’s see what other sources of revenues PMC has, as its not only Octroy or LBT which will be sufficient for the needs of the city. We have revenues coming from the various premiums for the new constructions coming up in the city & we have property tax which is generated from the residents of the city. And here is where main concern is. As firstly if we fail to provide good infrastructure then people will keep away from the city, which is what happening now as PCMC i.e. pimpri chinchwad corporation is in our neighborhood & many people are opting to reside there for better infrastructure & then due to very high land costs many people are opting to reside in collector area i.e. area which is out of PMC limits. And lesser buildings mean lesser revenue from building premiums. Second is property tax & here by PMC survey itself nearly 40% people stays is slums who hardly pay any property tax & then nearly 20% people stays in illegal buildings so they too don’t have any property tax as the buildings themselves are illegal! But the slums as well illegal buildings residents are using all the civic services right from roads to water to drainage & not paying anything for the same! This means 40% of citizens are paying for the services which are being used by 100% citizens of the city, which is unjust!

So first of all we need to ensure every person who is using the services of the city is paying for it, this will increase revenue in large way & for that if they are not paying property tax by the present model then come out with some other means by which the revenue for enjoying the civic services will be ensured. Like tie up with their salary or daily earnings the property tax & get it cut directly on monthly basis if they are not paying by property tax bills. I know this is just a wild thought but worth thinking of as any way we are not getting a single rupee from this sector against property tax is a fact! Then look out what other such cities not only in other States but other countries are doing for their revenues. Like in USA if the plot has been kept vacant & not being used for the purpose it has been reserved then the plot owner has to pay nearly ten times property tax. This ensures the plot is being used for the development & comes in the use for the purpose; thus either residential or for any service but it comes under use.  Another important aspect in western countries is, services like water supply as well public transport has been privatized so they are being run like a private corporate & revenue as well quality of service is assured. For e.g. providing water via meters is a prolonged issue which our rulers i.e. elected members are not acting upon just to make their voters happy & we are losing revenue in huge way on the same. In most of the western countries water supply is by some private company which charges rationally for every drop being used by the resident of the city. Same is the story with public transport as we keep on reading hundreds of crores of rupees spent on the PMPML i.e. our public transport system, yet it’s in loss & nobody is happy with its service to the commuters! In all other cities in western countries & even in Singapore, public transport is run by private companies, ensuring revenues as well its good service.

Recently the news was PMC has appealed to State as well Central govt for funding them for acquiring lands for various purposes as the new acquisition law makes it mandatory to pay double the land rate to the owner. Here why can’t we make TDR i.e. FSI given in lieu of the land thrice making more people go for the TDR option & again this TDR will be put to use in city construction only? Every time when the FSI or TDR terms are mentioned its hohallah that it’s in favor of builders, well then even one FSI or TDR is also in favor of builders only so abolish it & stop all the construction in the city! Do remember it’s not the FSI or TDR but it’s the infrastructure of the city which makes a city good or bad & if that itself is not being achieved by our policies then it’s high time to look inwardly & then make new policies!

Right now we are in vicious circle as no infrastructure so no additional FSI, no additional FSI so no more numbers of home & no more numbers of home so the cost of available homes is going high & so people are opting to stay in illegal buildings or slums which again ends up in loss of revenue & then things like LBT came which again are opposed by the traders or the respective community. Let’s remember no tax can be justifiable if it’s not being put equally on all the segments. At the same time there was a sess (a form of lavy or tax) put in the form of stamp duty in the properties which are in PMC limit, again what happened to the amount collected from this sess & what’s its utilization in civic works is a  mystery! This is era of information & transparency is the word! People don’t mind paying taxes provided they know what happened to the money they paid in the form of tax & on this front also PMC is lacking very much. Years after years projects like BRT i.e. bus rapid transport, keep on going & never come in full form to serve the citizens. The way a project like cycle tracks is being executed is the biggest joke of the city & because of this when we try to put on new means of revenue, oppose is going to be there!

See that more & more people comes to reside in this city & for that faster, transparent system of sanctioning new homes has to be in place, making the homes affordable to all classes of the society! Need of the time is make a single tax system which will be uniform for all segments of the city & then see that it works. Also give every rupees accounts earned as well spent & let the results speak & not the balance sheet as the common man is more interested in outcome of what he has paid in taxes! Real estate is not an enemy of this city but is very much part of the city; actually it’s the system which has made it look like biggest enemy of the city! And all this is needed to be done in fastest possible time span; as the time has already gone & making more delay in deciding means of revenues means a sure end of the city. This truth is what our rulers have to understand than just thinking of their respective vote banks. Or else the day isn’t away when voters will be there but nothing left to vote for!


Sanjay Deshpande

Sanjeevani Dev.

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