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Time to think of imposing a vacant flat tax

india Updated: Apr 08, 2012 01:45 IST
Vaibhav Purandare

The word economics is derived from the Greek oikonomos, the closest translation of which is, according to experts, household. So economics is supposed to be all about household management, either at the micro level or at the broader, national and international level.

It is necessary, however, to have a house in order to do household management. How do you describe the economy of a city in which it is near-impossible to buy a decent flat for less than a crore? Surely there’s something terribly wrong about it?

Anyone earning money by legitimate means struggles to buy a home south of Kandivli in the western suburbs and south of Mulund in the central suburbs, while speculators have a killer run, gobbling up properties all over the place and keeping property prices from falling in association with a cartel of developers.

The Centre is now considering a vacant land tax to check hoarding of properties. The idea is that developers who buy land and keep it vacant, waiting for real estate prices to shoot up, should pay for their speculative behaviour.

Apparently, southern states such as Tamil Nadu and Andhra Pradesh already collect such taxes in their cities, while Punjab and Bihar are contemplating introducing the tax to check rising property rates.

There is definitely a case for Maharashtra to bring in this tax, for developers have been hoarding huge tracts of land in Mumbai, Pune, Nashik and other booming cities and towns of the state. In Mumbai, though, is there a case for taking this forward and imposing a tax on vacant flats?

The idea may seem preposterous, given that Mumbai has never been anti-speculation and has always encouraged the making of a fast buck, in much the same way that the US has. Its entrepreneurial spirit has also been the guiding influence for post-liberalisation India.

But haven’t speculators taken things too far in the housing sector, and the state government failed utterly in controlling the hoarding of flats and the parking of black money in property? Speculators cough up obscene amounts to buy flats in prime localities, and then seem to have some more left — much of it in cash, remarkably — to buy more properties. Why should they not cough up a heavy tax for every vacant flat they hold? That may be one way of discouraging speculators, who are often erroneously referred to in Mumbai as “investors.” The tax amount could go higher in direct proportion to the number of flats held, so that the principle is that the more vacant flats you hold, the more you pay.

Speculators should be made to pay because they are directly responsible for lakhs of flats going unsold in the city as a result of high prices. They are, thus, responsible, along with developers, for robbing thousands of families of housing stock. Above all, they are responsible for the distortion of the meaning of housing — it has, because of them, become an instrument or commodity only for buying and selling, and is no longer what it is primarily supposed to be: shelter.

There are huge problems with such a vacant flat tax, of course. One is that the law can easily be circumvented by getting ‘dummies’ to live in a house, and the second is that any such law comes unstuck when we are discussing benami flats.

The biggest problem is that such a tax could punish someone who has put in his life’s savings to buy that extra flat. So then should we start imposing the tax on those who have at least two vacant flats? That could be an idea, but I cannot think of better solutions to these issues. Can you?