Framework for a Strategy of UP Revenue/Resource Mobilisation ...

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(2) If house/building has more than one storey, consider all storeys as separate unit. (3) For shops, industries and other businesses larger than 100 sq ft (10m 2 ), and multi-storey residential blocks, either this method or annual rental value method may be used. (4) Add 105 tax for water facility on plots means UP supplied or served water. (4) Katcha here means mud and thatch. Tin-roof is taken as being between katcha and semi-pacca. High quality means pucca construction with a high standard of finishing work. Table 1 shows the assessment values at various tax rates: 3%, 5% and 7%. Tabulations for 4% and 6% could easily be prepared if required. The UP would choose which tax rate to set and therefore which table to adopt. The assessments in the table are based on estimates of the annual rental value using the construction cost figures produced by GoB’s Public Works Department (PWB). However, they are not precise valuations but they nevertheless provide a consistent basis for assessment. (Precise valuations are not required, of course: what matters is consistent treatment between all properties, so that the tax burden is distributed fairly.) One requirement for the new system to work properly is to remove the present tax ceiling of Taka 500 per building/land (non agricultural land). This ceiling is a serious anomaly because such a ceiling benefits only the rich and this ceiling was introduced in 1961 about 50 years ago. Inflation has eroded the value of Taka 500, so that annual rental values of larger properties, and particularly non-residential properties, are well above that ceiling. A particular issue arises with multi-storey blocks of rooms, where the assessment should be many times higher than Taka 500. 12 There seems to be some ambiguity about whether holding tax applies to all property or only to houses. Most UPs do not appear to be collecting holding tax from non-domestic properties and some businesses refuse to pay on the groups that they are paying trade licence fees. 13 The LG (UP) Act, 2009 refers to buildings and land. It is, thus, clear that non-domestic properties are covered. There is, therefore, no reason why UPs are not collecting both holding tax and business licences from a business. Most non-domestic properties like shops will be covered by the mass appraisal system. There are some issues in relation to major public infrastructure, such as railways, power plants and power distribution systems. These issues need to be resolved at national level, since such facilities are generally state-owned and assessment of these sectors creates considerable problems. b. Improving Revenue Administration and Collection Performance 12 This ceiling mainly benefit the rich and are not justified in a proper property tax assessment system. Ideally, they should be eliminated. However, adopting the mass appraisal system avoids these anomalies. 13 There also appears to be an issue about exemptions from taxes for export industries. Although officially such exemptions only apply in a few export processing zones, it was claimed that some industries elsewhere refuse to pay local taxes on the grounds that they are producing for export. 13
It should be pointed out that there are the problems of local revenue in UPs and that many of the problems faced here are common to local governments around the world. Most of what is proposed here is far from new 14 . Much of it is about enabling UPs to implement what they are already supposed to do, or to adopt good practices which have already been adopted in some UPs. There is considerable scope for improving UP revenue administration. At present, in many UPs, only 10- 20% of the holding tax is collected and many businesses do not have licences. Collection of holding tax is never likely to achieve 100% achievement because so many people are poor, but a number of UPs have demonstrated that it is possible to increase collection performance significantly. The following are the steps that UPs need to take in order to achieve a higher collection performance. a) Prepare a register of all properties in the UP, including non-domestic properties, and updating that register annually (see Annex -2 for a pro-forma). b) Use the mass-appraisal system to assess all the holdings. The register, with the assessed values should be made public so that people can see if there are anomalies, and any collusion between assessor and household can be revealed. This will inspire public confidence that the system is fair. 15 c) At present, reductions to assessments are often made on the grounds that households are poor. It is suggested that any reductions should be made explicitly (as per the pro-forma at Annex- 2), ideally, at ward level, if possible, and approved by the UP. It is also suggested that the reductions should be limited to 25% of the assessment and should be given only to the most needy, not to everyone, so that everyone contributes at least something. This will also help to create trust in the fairness of the system. Furthermore, it is proposed that not more than one quarter of households be given a reduction. Annex - 3 provides a pro-forma for a revised assessment register, showing the basic information on the property (plot number, owner, occupation or income source, number of rooms, type of construction, whether or not there is an individual water supply on the plot). From this, the basic assessment can be made from the assessment table (Table-1). There is then a column for reasons, if any, for a reduced assessment. The last column shows the final assessment, taking account of any reduction (may be 25% that 14 See Nick Devas (July 2007): Local Revenue Sources for Union Parishads: Report of a Study; and Nick Devas (September 2008): Enhancing Revenue Sources for Union Parishads 15 Citizens will still have the legal right of appeal, first to the UP, then to the UNO, and finally to the Deputyt Commissioner, if he/she considers the assessment is wrong or unfair. 14
Page 1 and 2: Local Governance Support Project- L
Page 3 and 4: ABBREVIATIONS AND ACRONYMS ADP Annu
Page 5 and 6: feed these “second generation”
Page 7 and 8: III. Legal Status of UPs Revenue Mo
Page 9 and 10: � Regular transfers from central
Page 11 and 12: official formula. 6 However, in man
Page 13 and 14: at the ceiling rate of Taka 500, in
Page 15: Table 1: Holding Tax Assessment Pil
Page 19 and 20: probably be paid more than the 15%
Page 21 and 22: � increasing UPs’ share of the
Page 23 and 24: e. Fifth UP will be selected where
Page 25 and 26: about the level of business taxes,
Page 27 and 28: � Policy Advocacy a. Policy advoc
Page 29 and 30: Ups’ self sufficiency and better
Page 31 and 32: Tax Schedule, 2003 to at least refl
Page 33 and 34: 5. Motivation and Incentive system
Page 36 and 37: Annex- 2 : Holding Tax Assessment R

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