The budget for the FY 2020 – 21 has been presented through video conferencing due to the lockdown announced by the State Government.
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Let us see the figures presented in the budget. The total budget is for Rs. 10897.58 crore which is 6.5% lower than the previous year’s budget. But the more important revelation in the budget document is the revised figures for the previous year 2019-20. The revenue receipts are just 60% of the budgeted figure. In other words, against the projection of Rs. 11,652.93 crore they have been able to raise only Rs. 7067.86 crore.
When its performance in a near normal year was so poor, imagine what BBMP’s revenues will be like while a pandemic like Covid-19 is raging. We don’t know how long this virus will persist and continue to affect our economy. It will be a miracle if the revenue figure exceeds 50% of the budgeted figure. In absolute terms it will be about Rs. 5450.00 crores.
Development work is the casualty
Let’s consider the overall figures. The total amount earmarked for development works (49%) and maintenance works (11%) is 60% of the total budget, which in absolute terms work out to Rs. 6538.00 crore. And the other expenditure heads are allotted Rs. 4360 Crore. Since you cannot cut too much from other heads of expenditure (which consists of salaries, pension amounts, Interest and loan repayment, administrative expenses, solid waste management etc), the obvious victim will be development and maintenance works.
If you consider the actual figures, the BBMP will have a few hundred crore to a maximum of Rs. 1000.00 crore for both development and maintenance works. The proposed budget is therefore a sure indicator of the lack of any significant development work in the city this year.
This has been a recurring phenomenon in every budget, and there are fundamental flaws in our financial system that lead to this perpetual state of deficit.
The major sources of income for BBMP consists of the property taxes, the advertisement license fees, the rental income on BBMP properties and the adhoc grants from the State and Central Governments. Let us consider the status of each of these sources.
Revenue from property taxes
1. Bengaluru has around 33.00 lakh properties. Unfortunately only 18 lakhs out of them are in the tax net. It means less than 55% (this is in terms of numbers) of the properties are paying taxes. And among these, a significant number is not up to date in paying taxes. The figure doled out by BBMP unofficially is around 45%. Another way of arriving at this is to compare the actual collection against the full potential.
Even the most conservative estimate is that the tax potential of Bengaluru at present rates is Rs. 7000 crore. The maximum collection so far has been Rs.2700 crores. The percentage of collection thus works out to a little less than 40%. Unfortunately a lack of clear, real time data hides all these inefficiencies. Earlier there was a practice of maintaining a DCB (Demand, Collection and Balance) Register which would give a fairly clear idea about the actual efficiency of collection. Once the F-Bas accounting system was introduced, this practice has been given the go by. It should be restored and the information should form a part of the annual budget document.
2. In this digital age there are ways and means of mapping the properties in the city and it is actually available with the BBMP. But it is not made public for obvious reasons.
3. Another major reason for this sad state of affairs is the extremely corrupt regime in the revenue and engineering departments of BBMP. A few of the methods adopted by them are as follows:
- Even years after the buildings are completed they are not assessed for payment of property tax. They are not detected because there is absolutely no mechanism to track the number of properties under construction, how many are completed during the year etc. Of course unofficially the Engineers and the Revenue Officers are fully aware of the facts.
- The declaration under the Self Assessment Scheme in many cases is understated. Even though there is a provision for random checking, such a system is not followed resulting in lesser tax collection.
- Another area is the additions and alterations to already tax-paying buildings which perhaps are more in number and which are not assessed. In fact, in the case of additions the assessment will be postponed by a few years. Just imagine the loss of revenue for the civic agency.
- Let’s not for a moment imagine that the revenue and engineering department personnel are not aware of the ground reality. They know everything that is happening in the ward. Just try to take up some repair work and bring in a small quantity of sand etc in front of the building and you will see that the revenue inspector or the Assistant Engineer will come to your place and demand to know the nature of work. They have a very wide information network. Only thing why additional revenue does not flow into the coffers of BBMP is that they enter into an unholy alliance with the builder/owner and postpone the assessment by a few years and pocket up to 50% of the tax saved as their fees for not assessing.
- To stop this, a proper tracking mechanism should be established. One way would be to digitise the building licenses issued, put it on the website and track its progress. The commencement certificate and occupancy certificate must be linked to this. The concerned Engineering officers should be made to submit a monthly progress report regarding this and the same should again be posted on the web. Any obvious deviation from the ground reality can be reported by the local RWAs and citizens.
- There are other ways of ascertaining the number of households. They can compare it with the number of BESCOM connections. This will give a clear picture of the discrepancy.
- There is another aspect that has to be monitored and regulated. Large buildings, especially commercial buildings, do not go through the self assessment route, preferring assessment by the authorities. This gives room for a nexus while assessing, and after assessment a long legal battle is initiated by design. It is therefore imperative that a rule be introduced to make it mandatory for the owners/builders to deposit at least 75% of the assessed value in an Escrow Account till the case is disposed off. If this requires an amendment to the Law the State Government must move the necessary legislation at the earliest.
- Many well known international real estate agencies have projected that every year Bengaluru is absorbing more than 8 million square feet of A grade commercial and office space, which is the highest for any city in India. It is also estimated by the same agencies that for every Sq ft of such A grade commercial space, 2.5 to 3 Sq ft of grade B and C space is added. Where do we find an incremental increase in property taxes collection due to this increase in the commercial office space? There is a big scam there which has escaped public notice.
- If the above steps are initiated and completed in the next six months, the revenue accrual from property taxes will be Rs. 4500 crore at 90% collection efficiency. We believe that a maximum of 10% of the property owners may go to court and even this could be brought down if the rule mandates they deposit 75% of the assessed property tax in an escrow account.
- The shortfall on this account is Rs. 5000.00 crore
Revenue from leasing out advertisement hoardings:
1. Another major reasons for shortfall in revenue is the dominance of the advertisement mafia consisting of the advertising agencies/contractors, the politician and the revenue officials of BBMP. The earning potential from licensing advertisement across the city is estimated at more than Rs. 5000 crore by BBMP itself. As a comparison, the Kempegowda International Airport, spread over 16 Sq Kms, earns more than Rs.300.00 crore per annum in revenue from advertisements. The BBMP, spread over 840 Sq Kms, shows a meagre Rs. 35.00 crore. The area available to BBMP for leasing out to hoardings is at least 50 times of what is available with the airport and even assuming that the rates of BBMP cannot probably be as high as that charged by KIAL, the estimated potential couls be at pegged at Rs.5000 crores.
2. It has therefore been taken that the shortfall in advertisement revenue is at Rs. 3000.00 crores.
In the concluding part of this analysis, I discuss the means of improving the finances of BBMP and suggest how the improved resource mobilisation can lead to the building of a better city in tune with the aspirations of its citizens.