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LMC dilemma: How to tax the resourceful?

The Lucknow Municipal Corporation (LMC) is on the horns of a dilemma.

india Updated: Feb 02, 2007 05:33 IST

The Lucknow Municipal Corporation (LMC) is on the horns of a dilemma.

It needs resources to meet out its share of contribution for procuring funds under the Jawahar Lal Nehru National Urban Renewal Mission (JNNURM). But its problem is that those who can be taxed to enhance the income apparently appear more resourceful.

The outcome: Because of the resource crunch, the LMC may lose the race for the Rs 500 crore it has sought under the city development package from the JNNURM. This was the message given to LMC officials by the mandarins in the Ministry of Urban Development in New Delhi during a discussion on the projects submitted by it under the CDP. “The officers were aghast at seeing our balance sheet and the list of institutions/establishments exempted by the State Government from paying the required house tax,” said an LMC official requesting anonymity. 

According to him, the LMC incurs an annual loss of approximately Rs 8 crore by way of house tax simply because these institutions and commercial organisations wield clout and hence have managed to have their way with the State Government. This includes schools/colleges, nursing homes, petrol pumps and cinema  owners. While in the case of school and college buildings, the State Government has issued an order exempting them from paying house tax, LMC has been given standing orders not to ‘harass’ others with tax recovery till further orders.

“Despite flouting the guidelines openly, most school and college buildings still claim exemption under the GO when we serve them tax notices,” informed a senior LMC officer. The GO, he said, clearly mentions that only those school/college buildings would be free from paying tax that are used solely for the purpose of teaching. “Take the example of DAV and the Islamia College, for instance, both of them have constructed a row of shops in the premises but they still claim the tax benefit for themselves,” pointed out the officer. The LMC, according to him, suffers an annual revenue loss of Rs 5 crore by way of house tax from schools/colleges, Rs 35 lakh from petrol pumps, Rs 2 crore from cinemas and Rs 50 lakh from nursing homes.

“These establishments barring the educational institutions are just paying the nominal house tax whereas our contention has been that they should pay us house tax capital cost basis as their activities are commercial in nature,” he said. Under the capital cost formula, Annual Rental Value of a property is assessed on the land cost plus building cost on DM circle rate seven per cent of which is payable as house tax.

The petrol pump owners say that they are willing to pay house three times more than what is charged under the residential category. But only on the constructed portion and not on the entire area that their establishment comprises as is being done by the LMC. Similar is the grouse of the cinema hall and nursing home owners against assessment of house tax on capital cost basis. They had petitioned the Government on the issue, which has restrained the LMC from proceeding.