For the purposes of levying urban property tax, the Bruhat Bangalore Mahanagara Palike (BBMP) is reported to have switched over from rental value to capital value of the urban property. This switch over has rightly been opposed in some quarters. BBMP Commissioner S Subramanya, however, has gone ahead issuing an order to collect the urban property tax in BBMP areas based onthe capital value of buildings from Apri l1, 2008.

The former Mayor P R Ramesh, does not want the BBMP to impose undue burden on the property owners in Bangalore city. But Subramanya, being hard-pressed for revenue to undertake urban infrastructure projects and to provide basic urban civic facilities, has gone on raising the rates of fees on several  BBMP services and also has decided to  make the property owners in Bangalore city to share a portion of the sharp increase in the capital value of urban property.

Objection

Curiously, the urban development department has raised an objection to the decision of BBMP to switch over from rental value to capital value base of property tax without first getting the rental value based Self Assessment System evaluated by an expert body and without effecting proper amendment to the Karnataka Municipal Act. But all these authorities have either not cared to examine the constitutional status of  a capital value based urban property tax or simply ignored it with a “who cares attitude.”

The  power to tax urban property was conceived in the Government of India Act of 1935. As per the Act, the basis of property tax was understood to be rental value of property following the Anglo-Saxon tradition. When the Constitution was drafted, most part of the division of tax powers was copied from the 1935 Act.

Accordingly, in the Seventh Schedule of the Constitution, under the Union List, Item 86 clearly mentions that “taxes on the capital value of the assets exclusive of  agricultural land, of individuals and companies, taxes on the capital of the companies” are reserved for the central government. Exercising this power, the central government has been levying wealth tax on property of individuals and some property of companies.

Under the State List, Item 49 gives powers to the state governments to levy  “taxes on lands and buildings” and Item 61 gives the powers to levy “capitation taxes.” Thus state government entrusted the power to levy tax on buildings to municipalities. But the basis of such a tax cannot be capital value as it is reserved for the central government under Item 86 of the Union List. This constitutional lapse cannot be ignored by the people of Karnataka. Before any amendment to an existing  legislation is mooted, the law department is consulted. How did the law department permit this lapse?

Solution

The BBMP might have justified the switch over from rental value base to capital value base of property tax on the ground that many other countries are levying such a tax. That is blatantly a stupid justification because, the constitutional division of tax powers differ from country to country. India being a former British colony, it copied into 1935 Act what was prevailing in England.

The central government has not delegated nor empowered the state or municipal authorities to levy property tax based on capital value. That would have meant levying two wealth taxes which would have been disastrous. Therefore, the BBMP cannot levy property tax based on capital value as it would amount to levying municipal wealth tax.

Taxation of capital value is entirely reserved for the central government.  The former Mayor should file a suit in the high court requesting them to quash the BBMP tax notification on the ground of usurping constitutional power. The BBMP should explore alternative ways of raising revenue.

Probably the department of urban development may constitute an expert committee to explore all possible ways of augmenting the revenues of the urban local bodies in Karnataka.

 (The writer is a former member, Planning Commission.)