GHMC proposes Vacant Land tax

The Greater Hyderabad Municipal Corporation (GHMC) has come out with a revised property tax structure whereby the tax imposed on vacant plots is higher than that imposed for buildings and other structures.

VLT higher than property tax for land with building:

Going by the revised property structure, a building owner with a house in a 300 sq.yard plot in Jubilee Hills has to pay property tax ranging between Rs.5,000 and Rs.10,000, based on the plinth area. On the other hand, a plot owner owning a plot in the vicinity has to pay between Rs.30,000 to Rs.60,000 per annum towards vacant land tax (VLT).

VLT is 0.5% of the registration value of land:

According to the GHMC Act, the vacant land tax that can be collected by the corporation is 0.5% of the registration value of the land. The property tax fixed for a building that is build on a plot is based on the assessment. Such a provision has been included in the Act so as to discourage property owners in developed areas from keeping their plot vacant, thereby resulting in a burden to the civic body.

Constant increase in property values by government:

As admitted by officials of the GHMC, the VLT has resulted in considerable burden on plot owners due to the constant increase in property values by the Registration and Stamps department. Incidentally, the government had revised land values in many areas last year. They include a revision to Rs.45,000 per sq.yard in areas like Prashasan Nagar in Jubilee Hills, to Rs.30,000 per sq.yard in Madhapur and to Rs.20,000 per sq.yard in Srinagar Colony.

GHMC renames VLT as property tax:

Recently, the Andhra Pradesh High Court had declared that it is illegal to levy tax on vacant land besides land appurtenant to the buildings as under Section 212 (2) of the Act. This verdict was proclaimed in a case in which the corporation attempted to collect property tax inspite of building permission being given. Considering that there was a separate nomenclature for VLT in the Act, the GHMC renamed VLT as Property tax (on land) about a month back.

VLT collected from 1,600 property owners every year:

According to GHMC records, VLT is being collected from 1,600 property owners across all circles every year. While 400 property owners have vacant land in Circle 10 areas like Banjara Hills and Jubilee Hills, 385, 80, 80 and 40 property owners respectively have vacant land in Serlingampally, Kukatpally, Rajendranagar and Kapra circles. Among these, only 500 property owners have been paying property tax regularly.

GHMC claims it is impossible to identify all vacant land owners:

Considering that there are thousands of vacant plots within Greater Hyderabad limits, corporation officials have claimed that it is impossible to identify and issue notices to all these property owners demanding tax arrears. In such a scenario, the corporation has been collecting VLT from property owners as and when they are approached for building permissions.

GHMC collects Rs.17 crore during 2012-13 fiscal besides VLT:

Apart from VLT, the GHMC town planning wing collected about Rs.17 crore during the 2012-13 fiscal. This was towards other expenses like building fee, betterment charges, impact fees as well as other charges, collected from about 12,000 building permission applicants. Besides, Rs. 19 crore has been collected till date during this financial year from 9,000 applicants due to increase in land prices.

GHMC standing committee proposes reducing VLT:

Incidentally, the GHMC standing committee members had forwarded a proposal to the government to reduce VLT from 0.50% to 0.25% considering the burden that it would inflict on such property owners. This coincided with the time when the government was contemplating to hike government land values, last year. Moreover, the standing committee members had also suggested that if the VLT was reduced property owners would voluntarily come forward to pay their taxes.

Specifics of the Act:

As per the Act, if a building is constructed on a vacant plot, property tax will be applicable based of the assessment of the building. Such a provision has been incorporated in the Act so as to disuade plot owners from keeping their plot vacant.  Particularly, if the plot is in a developed area, keeping it vacant would be a burden on the civic body. Incidentally, the High Court had recently declared that as per Section 212 (2) of the Act, levying of taxes on land other than that appurtenant to buildings is illegal, unauthorised and ultra vires.

Drastic measures by GHMC:

As per GHMC records, VLT is currently being collected from about 1,600 plot owners every year, across all circles. It has been noticed that from among these plot owners, only about 500 of them have been paying their taxes regularly. Faced with such a stark scenario, the GHMC was forced to resort to drastic measures. Out of the total of 35,000 applications that the GHMC had received for building permissions in the last four years, it had approved about 29,000 application. However, inspite of getting approvals many plot owners have not started construction yet, even though it has been specified that construction should be completed within three years from receiving approvals.

Impact on realty:

What would be the impact of this move on realty? The levying of VLT would adversely impact investors, even though there will no be much of an effect on end-users. Investors will think twice before putting their money in plotted land investments. This would result in a further dent in the realty sector of the city which is already going through a slump due to the political instability as well as the economic downturn. Hence, it is imperative that the corporation does a roll back with regards to levying taxes on vacant land that has been purchased for investment purposes so that investor sentiment is taken care of.