Tax revenue is an important source of income for Urban Local Governments (ULGs) in India, which includes Municipal Corporations, Municipal Councils, and Nagar Panchayats. ULGs in India are empowered to levy various taxes and fees to generate revenue for providing public services to citizens.
The major sources of tax revenue for ULGs in India include the following:
- Property tax: Property tax is a tax levied on the value of property owned by individuals or entities within the jurisdiction of the ULG. Property tax is the most significant source of revenue for ULGs in India and is typically levied annually.
- Profession tax: ULGs can levy a profession tax on individuals or entities engaged in professions, trades, or callings within their jurisdiction. The tax is usually collected monthly or annually and is based on the income earned by the individual or entity.
- Advertisement tax: ULGs can levy an advertisement tax on hoardings, signboards, and other types of advertisements within their jurisdiction. The tax is usually levied based on the size and location of the advertisement.
- Entertainment tax: ULGs can levy an entertainment tax on various forms of entertainment, such as cinema tickets, amusement parks, and sports events, within their jurisdiction.
- Vehicle tax: ULGs can levy a vehicle tax on vehicles registered within their jurisdiction. The tax is usually based on the type and value of the vehicle.
Apart from these taxes, ULGs in India can also generate revenue through user fees for various services such as water supply, sewage, and garbage collection. Additionally, ULGs receive grants from the central and state governments for various development projects.
A variety of taxes are levied by the urban local government in different states. The most common taxes are
- property tax/house tax,
- profession tax,
- vehicle tax,
- Octroi,
- tolls,
- technical tax,
- tax on animals,
- entertainment tax,
- tax on transfer of property
- tax on advertisements.
There has always been a controversy regarding the overlapping of the taxes by the state government and the local government.
Following some encroachment by the state government into the field of taxation, the need of reserving certain taxes for the local bodies is obvious. This requires specific provision for the purpose of local government legislation.
Article 243W and 243X of the constitution of India impose a duty upon the state legislature to endow the municipalities with such powers and functions in the form of taxation, fee etc. to enable them to perform their functions. Though the constitution does not prescribe the kinds of tax, duties or fees to be levied by the urban local government,
1. House Tax/Property Tax
The tax on land and buildings which is known as ‘house tax’ or ‘property tax’ in most of the states constitutes on important source of urban local government’s tax revenue
The expression ‘property tax’ implies a tax on property. Traditionally, it is a tax on immovable and tangible property. It excludes such movable properties as furniture, fixtures, machinery, equipment etc. and such rights as licenses to run a hotel, shop in a cinema theatre.
2. Professional Tax
In addition to property tax there is second source of urban local government’s income i.e. professional tax. This is levied on persons according to occupation, in order to obtain revenue from those who do not pay the property tax but who should also bear their just burden of local expenses. Professional tax is levied on trades, Professions and Callings and may be termed as local income tax. It is elastic as it automatically increases with increase in income and population.
Moreover, since it is a personal tax, it assures quick and easy payment.
Professional tax is a levy on the incomes earned while entering in a profession or trade or business etc. The constitution of India, under Article 276 makes provision to facilitate the levy of this tax by the local bodies. The article imposes a limit of rupees 250.00 per annum which has since been raised to Rs. 2500/- per annum in 1988 by the constitution (sixteenth 16th Amendment). People think that “profession” tax and the central income tax need to be merged. It is recognized that “the profession” tax is a type of income tax
3. Terminal Tax
It is another indirect tax. It may be defined as a tax imposed on the incoming goods for consumption within the municipality or corporation. However, there is no system of refund when good are sent out of cities as is the case with Octroi. It may be collected through the agency of Railways on a commission basis.
This is the tax payable by the owner, on all or any vehicles (other than motor vehicles), animals used for riding, draught or burden, and dogs, when such vehicles, animals used as aforesaid, and dogs are kept within the local areas. Terminal Tax is covered by Entry 56, List II, schedule seventh of the constitutions of India and as such a terminal tax on goods or animals imported into or exported is similar in its incidence and is payable on goods on their journey ending within the municipal limits or commencing there from and not where the goods were in transit through the municipal limits.
4. Entertainment Tax
Entertainment tax is levied on programmes and luxuries including betting and gambling. Generally entertainments for charitable, religious and educational purpose as also for advancement of agriculture, industry and public health are exempted. The tax is determined, imposed and collected by the state governments and after the close of each year, it is reimbursed to the Municipal/Corporation bodies concerned in whole or part. The committee on Augmentation of Financial Resources of Urban local bodies had suggested that entire proceeds from this tax which at present go to the state exchequer, should be earmarked for the local bodies as it has a local basis and can also be best administered by a local authority with a certain degree of autonomy.
5. Advertisement Tax
Urban local governments are empowered to levy tax an advertisements other than those published in the newspapers with the prior sanction of the state government. Any person who displays an advertisement on any land, building, post of structure or in any vehicles playing within municipal or corporation area, or by means of cinematograph, has to pay this tax. However, any advertisement relating to public meetings or election to parliament or state legislature or the corporation is exempted from such tax. The state government can also direct an urban local body to levy this tax.
6. Toll Tax
The state legislature can by virtue of entry 59 in list II of seventh schedule of the constitution levy tolls. The word ‘tolls’ has a variety of meaning and commonest of them is where a committee or a local authority prescribes a levy for vehicles and animals passing over road, ferries and bridges etc, within the control of that authority
7. Tehbazari
In one’s own word tehbazari may be defined as the rent/charges received by the municipality/corporation for the use of public land. The law Lexicon, 2001 defines tehbazari as the ground rent of a stall in the market.
8. Other Sources of Tax
Apart from the above described major sources of tax revenue other taxes which are levied by urban local government includes:
a) Tax on Animals b) Servant tax
c) Tax on transfer of property d) Tax for sanctioning building plans
e) Show tax f) Sanitary tax
g) Water tax h) Education tax
i) Tax on pilgrimage
j) Tax on lotteries
Overall, tax revenue is an important source of income for ULGs in India, and effective tax collection mechanisms can help ULGs to generate adequate revenue for providing public services and improving the quality of life for citizens.
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