BMC’s 20 per cent property tax hike to pinch customers

Property holders in Mumbai are likely to pay higher property taxes in the new year as The Brihanmumbai Municipal Corporation (BMC) has decided to add 20 per cent area to carpet area to calculate the property tax. The Bombay High Court had directed the BMC to see whether the formula to calculate the property tax can be calculated on the basis of carpet area of the flat rather than the built up area. Following this, the BMC had submitted a new formula based on carpet area, but to balance out the amount the civic officials proposed to multiply the ready reckoner rates by 1.2 to keep the rates same. This essentially means that BMC will calculate property tax 1.2 per cent on the carpet area instead of 1 per cent, which means 20 per cent increase in property tax.

What is the rationale behind the hike?

The BMC claims that it would lose Rs 300 crores per year due to the Bombay High Court directive unless it applies the 20 per cent hike. Property tax collections are one of the main sources of revenue for the BMC. The new system is expected to generate Rs 2,683 crores in the form of taxes from some 2.98 lakh properties in Mumbai. The BMC will incur tax revenue loss of Rs 1,200 crores if it applies retrospective tax without adding 20 per cent over the carpet area. According to BMC data, the civic body has collected Rs 2200 crores as property tax till the last week of December.

Earlier, BMC had replaced property tax computation from rateable value method –based on rent – to capital value system – based on the property’s market price.

Double whammy for consumers

The state government has also decided to increase the ready reckoner rates by an average of 15 per cent, which will have a direct impact on the property tax you pay to the civic body. The ready reckoner of an area determines the base value of the property — one of the factors used to calculate its capital value and thereby the property tax to be paid under the new capital value-based system. With revised ready reckoner rates, there will be further increase in property tax to be shelled out by consumers further pinching their pockets.

Mumbai-based brokers also feel that the move to hike property tax could impact the property market. “A sizeable hike of 20 per cent will surely impact the residential market and more specifically the rental market. The landlord is unlikely to shell out the increased property tax from his own pocket and will pass the burden to the tenant,” says Ramprasad Padhi, CEO, Mumbai Properties.

Strong opposition to hike

Corporators in the BMC have opposed the property tax hike proposal claiming this will put additional burden on property holders. Jyotsna Dighe, Congress corporator from Lokhandwala, Andheri said that “We vehemently oppose any further hike in property taxes as this will directly impact the common man. This is great injustice to the people and we will continue to fight this cause.” The matter is unlikely to die down soon and will be hotly debated in the BMC in the weeks to come.