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Unit Area Method of Assessment
Property Tax is one of the main sources of internal revenue of the Urban Local Bodies. As the property tax is determined on the basis of annual valuation of lands and buildings, the entire process of determining property tax is solely dependent on assessment of lands and buildings.

Presently in the Urban Local Bodies of this State the following two systems of assessment of lands and buildings are followed:
  1. Annual Rental Value (ARV) System: In this system tax is calculated on annual rent that is actually or reasonably be fetched by a property. Here Annual Rent (AR) = Monthly actual or reasonable rent X 12. In this system Annual Value (AV) = AR minus x% (in case of Kolkata Municipal Corporation value of this x is 10%) statutory deduction for maintenance. A percentage of AV is determined as the annual Property Tax. In case of Kolkata Municipal Corporation this tax = (AV /600 + 10)% of the AV subject to minimum of 11% and a maximum of 40%.
  2. Capital Value Method: In this system tax is calculated on Annual Value derived from cost of construction added to cost/ market value of the land. Here AV = (Construction cost + Market value or cost of the land) X a percent as laid down in the statute minus statutory deduction. Annual Tax = AV X a percentage of AV. In Kolkata Municipal Corporation AV of vacant land is determined at 7% of the market value of the land.

Since enactment of the Calcutta Municipal Act, 1923 these two systems are being followed for assessment of lands and buildings in the municipal areas. With growing rate of urbanization and change in the socio-economic scenario the flaws in these two systems are being surfaced, and due to these flaws the system of assessment of lands and buildings is getting more complex and as a fall out the rate of collection of Property Tax is dwindling and simultaneously the scope of tax management is growing. These flaws are as follows:

Flaws in Annual Rental Value (ARV) System:
  • Subjectivity: "Reasonable Rent" is a completely subjective term, and creates considerable scope for using discretion at even lower level.
  • Discrepancy: This system creates wide spread discrepancy by placing similar properties in dissimilar tax pattern.
  • Non transparency: Non transparency of this system leads to mutual mistrust and misunderstanding. Apart from this the system creates ample scope of tax management and entry of middleman in the system.
  • Wastage of time of officials: Officials remain busier in arguing with the tax payers, cumbersome and lengthy hearing process and file / document management, than to do the duty related to tax administration.
  • Non reflection of actual revenue potential: Subletting, subdivision and collusive rent have been hiding the actual revenue potential. Apart from long term tenancy and Rent Control properties lead to low valuation for low rent.
Flaws in Capital Value (CV) System:
  • Limited availability of sales data and unregistered instruments.
  • Under reporting of Transaction Price especially for old buildings.
  • Freezing of Tax base.
  • Need for qualified staff to assess cost.
  • Uncertainty of what assets should be covered.
  • Scope for subjectivity and discretion and hence non transparency.
  • Inequity between similarly placed properties assessed at different points of time.
    Subjective element of these systems leads to non-transparency, wastage of time of the civic personnel in cumbersome processes, and above all difference of opinion leading to excessive litigations, and thus wastage of efforts of civic personnel and fund in fighting the court cases.
    In this situation to ensure a dynamic process of a transparent tax administration a decision has been taken to switch over the system of valuation of properties in Urban Local Bodies to Unit Area System of assessment.
Design of Unit Area System:
  • One time in-house work in every five years to bring equality at macro level at first.
  • Determination of valuation by an independent Committee namely the Municipal Valuation Committee.
  • Division of all wards in varying number of sub-wards/ blocks depending on basic infrastructure, in broad based manner, after considering the views of general citizens.
  • Categorization of such sub-wards/ blocks on the basis of available infrastructures and defined factors.
  • Grouping the sub-wards/ blocks of identical and similar in nature of whole area of the Urban Local Body in same set.
  • Putting Base Unit Area Value, i.e. Base annual value per sq. ft. to properties within a grade of sub ward/block with the help of revenue simulation taking into consideration the existing revenue base. In this way similarly located all properties will have similar Base Unit Area Value. This will be publicly communicated.
  • Fixing predefined and publicly proclaimed multiplicative factors (from 0.5 to 8) to determine the actual value of the property, by increasing or decreasing the Base Unit Area Value depending of condition of individual property. For fixing multiplicative factors the mandatory parameters of type of location, use, age structure and occupancy status shall bed considered, and apart from this there exist provision for considering such other parameters as may be considered necessary by the Municipal Valuation Committee.
  • Publication of the scheme, after considering the views of general citizens, for the purpose of specifying Base Unit Area values of lands and buildings under all classes of areas within the Corporation.
  • In this system the annual value of a land or building shall be the amount arrived by multiplying the total area of land and/ or building by the Base Unit Area value of such land and/ or building.
  • A percentage of such annual value shall be fixed as the annual Property Tax.
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