As Bengaluru’s civic officials were in the process of sealing down a shop in the neighbourhood of R.T. Nagar in north Bengaluru over alleged property tax evasion, the 50-year-old property owner Shankar T. collapsed in shock. The civic officials, taken aback, returned the keys even as the man was grappling to arrange money to clear the dues and penalty. Although he was running a commercial establishment, he was paying property tax stipulated for a residential property.
Shankar, in his defence, said he had been paying residential property tax as prescribed without fail, as only a small portion of the residential building on the ground floor had been rented to a shop. “Now I have taken loans to pay the civic body. For many years now, nobody had raised any objections, and now all of a sudden they want us to pay arrears, interest on that, and a hefty penalty,” he rued.
In another case, Ramesh Raj, who had rented out his property for a small hotel, is asked to pay ₹3.5 lakh tax with penalty and interest for not paying commercial property tax. He has to pay the commercial property tax for the last five years. The residential property tax is pegged at ₹600, while the commercial is fixed at ₹14,000 per year. “I have now paid half the sum and am now struggling to arrange the money,” he said.
Commercial properties and residential properties rented out attract a higher property tax than self-occupied residential properties. The cash-strapped city civic body, Bruhat Bengaluru Mahanagara Palike (BBMP), now on a special drive to augment its revenues to reduce its dependence on the State government for grants, has served such demand notices to over 15,000 properties in the city over the last three months.
Notice for hefty penalty
Many property owners who have received demand notices for arrears, interest, and penalty have been crying foul, alleging harassment by civic officials and pointing out that the civic body was also at fault.
In an election season, a delegation of the opposition Bharatiya Janata Party MLAs and MPs from the city termed the drive “a loot of the people” and demanded that the State government withdraw these notices for a hefty penalty. The BJP has also argued that under Section 144 (15) (8) of the BBMP Act 2020, the civic body cannot levy fines retrospectively.
Following similar petitions by property owners at a public grievance redressal meeting in the city on January 17, Deputy Chief Minister and Bengaluru Development Minister D.K. Shivakumar said the State government was mulling over legal measures to cancel penalties levied on arrears. “The hefty penalty is being levied as per BBMP Act, 2020, which was brought by the BJP. We need to bring an amendment to withdraw these penalty notices. We are thinking along those lines,” he said.
However, neither has there been any announcement of such an amendment Bill being in the pipeline in the ongoing Budget session of the Karnataka Legislature, nor has the BBMP let up to date.
Bruhat Bengaluru Mahanagara Palike head office at Hudson Circle. | Photo Credit: K. MURALI KUMAR
Target for every ARO
As part of a recent exercise of matching the property tax database of the city with the database of commercial power connections, the city’s civic body uncovered a tax evasion of nearly ₹600 crore. This is part of the nearly ₹1,300 crore total arrears identified now. Of the newly uncovered evasion of ₹600 crore, the civic body has already collected almost 25% of the arrears over the last three months, sources in the BBMP Revenue Department said.
For the recovery of these arrears, the BBMP is seizing movable properties and even attaching immovable properties. It has sealed down more than 10,600 properties after senior IAS officer Munish Moudgil took charge as Special Commissioner (Revenue) of BBMP in October 2023 and launched this special drive. As of February 8, the civic body has already collected ₹3,548 crore in property tax and cesses as against a revenue target of ₹4,790 crore.
Govt. facing fund crunch
The ongoing special drive comes in the context where the State government faces a fund crunch as significant budgetary resources are being earmarked for implementing five guarantee schemes that were Congress’s poll promises. In the Budget, Chief Minister Siddaramaiah is set to present on Friday (February 16), the guarantee schemes are expected to have an allocation of over ₹50,000 crore.
A source in the BBMP said the Assistant Revenue Officials (AROs) are directed to issue at least 25 notices per week and shut 20 shops per day. The officials are working under extreme pressure as they were warned of suspension for failing to reach the target set by the Revenue Department. A senior BBMP official says this rigour is due to stern direction to improve tax revenue by Bengaluru Development Minister Shivakumar, who, shortly after taking over in May 2023, said the Self Assessment Scheme for property tax in the city had led to evasion as people were not honest and under-declared their properties.
The city’s civic body brought in the SAS scheme for property tax in 2002, under which property owners self-declared the dimensions and nature of their property and paid the tax. The civic body has to verify the self-declaration of a random sample to ensure there is no tax evasion.
BBMP’s dependence on govt.
However, the civic body has been able to collect only a fraction of the potential for property tax in the city, making it heavily dependent on State government funds for not just capital expenditures but also operational expenditures.
For instance, the Economic Survey for the year 2016-17 presented by the Union government studied property tax collection and potential in Bengaluru and Jaipur, Rajasthan, using satellite imagery and actuals. “The estimate indicates Bengaluru has the potential to collect up to 4 to 7 times its current property tax revenue,” the report said.
Seven years ago, in 2016-17, the Economic Survey estimated that considering the minimum Floor Space Index (FSI), the potential for property tax was ₹4,369 crore, and it goes up to ₹8,693 crore considering the maximum FSI and ₹6,526 crores at an average FSI. Seven years later, during which time, the city is sure to have added several properties, the BBMP is yet to even set a property tax target of average FSI value from seven years ago.
Marginal progress
But it doesn’t mean that there has been no progress on this front. As per a study by the Janaagraha Centre for Citizenship and Democracy, in 2016-17, the same year as the Economic Survey cited above, State government grants made up 53% of the city’s civic budget, even as 47% of the budget came from the civic body’s own revenues. In the estimates for 2023-24, the dependance on State government grants has reduced to 37% even as the share of the civic body’s own revenues has shot up to 51%.
Srikanth Viswanathan, CEO of Janaagraha Centre for Citizenship and Democracy, said BBMP had been moving in the right direction over the past few years by steadily increasing property tax collections. “Linking of property tax databases to stamp duties and registration charges databases and using power and water supply databases for big data analytics, and an 80-20 approach of focusing on high-value properties and others would further help better the performance,” he said.
In the Budget estimates for 2023-24, the dependance on State government grants has reduced to 37% even as the share of the civic body’s own revenues has shot up to 51%. | Photo Credit: K. MURALI KUMAR
Tax collection drive faces flak
However, some civic activists have taken strong objection to the ongoing special drive to augment property tax collection. N.S. Mukunda, of Bengaluru Praja Vedike, and one of the original proponents of SAS for property tax in the early 2000s, said the government was only penalising at least a “partially honest” taxpayer. “There are lakhs of buildings outside the tax net in the city. This is the source of major corruption in the city. Without bringing these buildings into the tax net, the government is penalising taxpayers who may have not been completely honest but are at least paying some tax,” he said.
Presently, the city’s civic body has 20.22 lakh buildings in the tax net. However, BBMP officials themselves concede that there are nearly 5 to 7 lakh properties still out of the tax net, which do not pay any tax. “The number of properties out of the tax net has always been over 5 lakh for over a decade now. Without this number coming down, there is no meaning or justification for penalising taxpayers, who may have underpaid,” Mukunda argued.
Former Congress councillor Abdul Wajid said the ongoing special drive has led to harassment of small and mid-level property taxpayers. “Under the SAS, people may have understated the measurement, but what did the revenue officials do all these years? There is a fault on the BBMP’s end, which should be taken into consideration before taking stringent action. He said on a daily basis, he is receiving calls from property owners seeking help to convince BBMP to provide flexibility,” he said. He also said the civic body, which is chasing small defaulters, there were many big defaulters from whom the civic body has failed to collect dues.
Making defaulters pay a big challenge
Even as property tax collection has improved over the years, tax evasion and pending dues are also mounting, which the civic body has failed to address successively. The major challenge faced by the BBMP is recovering tax dues from large defaulters. Among the top 50 defaulters, some have pending dues, even to the tune of ₹150 crore.
“The defaulters approaching courts to secure a stay order is a major hurdle in the tax collection. Many violators and tax evaders are successfully obtaining stay orders. Over the years, the frail legal team failed to win these cases in the courts,” Moudgil said, adding that the legal team had been revamped. BBMP will soon publish the names of top 50 defaulters.
