Tax increment financing (TIF) is a flexible instrument for financing urban development, expansion or renewal to stimulate local economic development (LED). It aims at escrowing anticipated revenues from such projects, including tax increments due to their execution to service the debt incurred for financing. TIF is an innovative tool that uses future revenue streams to finance current infrastructure programmes.
Under a TIF program, the concerned local authority first designates a TIF district. It then
estimates the natural rate of property tax growth that would have occurred had the new infrastructure development not taken place. This provides an estimate of the national assessment base or “base value” for the TIF district. Over time, the local authority compares this with the actual TIF district assessment base, the difference being “assessment increments” that translate into “tax increments”. With the prevailing property tax rates being applied by the local government to the new assessed valuation in the TIF district, the tax increments are dedicated to financing the TIF infrastructure. In this context, there are two common types of TIF strategies:
Blended: TIF is applied to infrastructure-induced property assessment and at the general tax rate.Uplift-only: TIF is applied only to uplift – infrastructure-induced increases in land or property value – and at a special supplemental tax rate, which is often equivalent to the value capture rate.
Tax increment financing (TIF) is a financing mechanism used by local governments to fund infrastructure and development projects. It is a flexible instrument for financing urban development, expansion or renewal because it allows governments to use future tax revenues generated by a project to finance the development costs of that project.
Under TIF, a local government designates a specific geographic area as a TIF district and freezes the assessed property value in that area. Any increase in property value that occurs after the creation of the TIF district is then designated as the “tax increment.” The government can then use this incremental tax revenue to finance development projects within the TIF district, including public infrastructure, such as roads and utilities, or private development, such as housing or commercial buildings.
TIF can be a useful tool for urban development, expansion, or renewal because it provides a way for local governments to finance infrastructure and development projects without raising taxes on existing residents or businesses. Additionally, TIF can help spur private investment in areas that might otherwise be overlooked, by making development more financially feasible.
However, there are also potential downsides to TIF financing. One concern is that TIF districts may divert tax revenues away from other public services, such as schools or public safety. Additionally, TIF districts may be subject to abuse or misuse, as they can be used to fund projects that do not necessarily benefit the public as a whole.
Advantages of Tax increment financing (TIF)
Different advantages of TIF are as follows:
- new development will pay for itself;
- investments that create value and/or generate resources are facilitated even when the local body is not in a position to take up such investments;
- lacunae in collecting upfront contributions from the developers through development charges, exactions or impact fees, which discourage development, are avoided;
- long-term spatial planning and funding of planned urban development are facilitated;
- a market test for infrastructure funding through debt contributes to rigorous project selection that passes the benefit-cost test;
- an equitable approach is promoted by spreading cost over generations and making beneficiaries pay a fair share;
- authorities attempt to avoid time and cost-overruns in project implementation as debt payment is closely linked to revenue generation;
- fiscal discipline and accountability on the part of the local authority are promoted so as to avoid ‘free lunch’,
- fiscal problems of ULBs and municipalities at that moment do not act as a hindrance to the funding of new projects;
- urban planning and infrastructure development strategies are used as resource by the local
In conclusion, TIF can be a flexible and useful instrument for financing urban development, expansion, or renewal. However, it is important for local governments to carefully consider the potential benefits and drawbacks of TIF financing and to ensure that any projects funded through TIF align with their overall development goals and priorities.
हिंदी Hindi
टैक्स इन्क्रीमेंट फाइनेंसिंग (TIF) एक वित्त पोषण तंत्र है जो स्थानीय सरकारों द्वारा अवसंरचित विकास और विकास परियोजनाओं को वित्त पोषित करने के लिए उपयोग किया जाता है। इस तंत्र के तहत, स्थानीय सरकार एक विशेष भौगोलिक क्षेत्र को एक टीआईएफ जिला के रूप में निर्धारित करती है और उस क्षेत्र में निर्धारित संपत्ति मूल्य को जमा कर देती है। उस निर्धारित क्षेत्र के मूल्य में कोई वृद्धि होती है तो उसे “टैक्स इन्क्रीमेंट” के रूप में निर्दिष्ट किया जाता है। फिर सरकार इस अतिरिक्त कर राजस्व का उपयोग टीआईएफ जिले में विकास परियोजनाओं, जैसे सार्वजनिक बुनियादी ढांचे, सड़कें, बिजली, पानी, हाउसिंग और वाणिज्यिक इमारतों के विकास के लिए कर सकती है।
टैक्स इन्क्रीमेंट फाइनेंसिंग (TIF) के कुछ मुख्य लाभ निम्नलिखित हैं:
- शहरी विकास का वित्त पोषण: TIF स्थानीय सरकारों को उनकी शहरी विकास योजनाओं के लिए वित्त पोषण प्रदान करता है। यह सरकारों को संपत्ति के मूल्य में वृद्धि होने पर विकास परियोजनाओं के लिए कर लेने की अनुमति देता है।
- विकास परियोजनाओं के लिए संपत्ति मूल्य का वृद्धि: TIF से, संपत्ति मूल्य में वृद्धि होने से उस संपत्ति के मालिकों को लाभ होता है। इसके साथ ही, संपत्ति के मूल्य में वृद्धि करने से स्थानीय सरकारों को उस संपत्ति पर अधिक कर मिलते हैं जो विकास परियोजनाओं के लिए व्यय किया जाता है।
- स्थानीय अर्थव्यवस्था के विकास में मदद: TIF द्वारा उन संपत्तियों का विकास होता है जो विकास की जरूरत से अधिक अवसादित होती हैं। इसके साथ ही, यह स्थानीय कामगारों को रोजगार के अवसर प्रदान करता है जो उन्हें अपनी आर्थिक स्थिति में सुधार करने में मदद करता है
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