Decline in Mumbai’s revenue post-octroi worrisome, finds Praja report

Mumbai's tax revenues are declining post-octroi abolition, with property tax collections down. Experts call for reforms to improve municipal finances

Mumbai: There is a worrying decline in tax revenues in civic coffers following the abolition of octroi in Maharashtra, according to a new report released on Thursday by Praja Foundation. According to Milind Mhaske, CEO of Praja Foundation, while the Goods and Services Tax (GST) compensation from the state has helped cushion the impact on Mumbai, he stressed that this compensation is not a sustainable solution.

Mumbai fares better than other cities because the Brihanmumbai Municipal Corporation (BMC) has a legacy of competent tax and charge collection. (Photo by Raju Shinde/HT Photo)

“The GST compensation is a grant, not an own-source revenue,” he explained. “It’s an obligation fulfilled by the state government, with no legal mandate to continue it. Any future mandate would come only through recommendations from the state Finance Commission.”

Mhaske noted that the real challenge lies in the significant drop in property tax collections, which has broader implications for revenue generation. Over the last seven to eight years, property tax collection in Mumbai has seen a substantial decline, mirroring a national trend. He pointed out that, a decade ago, property tax and non-tax revenue contributed 43% to local revenue. Today, that figure has dropped to 34% across the country.

Despite these alarming trends, Mumbai fares slightly better compared to other major Indian cities.

He attributed Mumbai’s relative success to two factors: a strong culture of tax compliance among citizens and the efficiency of the local government, particularly the Brihanmumbai Municipal Corporation (BMC), which has a legacy of competent tax and charge collection.

However, the national picture remains bleak, with cities like Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Jaipur and Kolkata registering negative growth of -0.65% in real property tax collection, compared to Mumbai’s modest growth of 0.5%.

Mhaske said there was a need for systemic reforms for other cities. He called for the introduction of a formula-based GST compensation scheme, where funds would flow directly to city coffers. He also urged state governments across India to strengthen their tax collection mechanisms, ensure that municipal bodies have adequate staffing, and encourage citizens to pay taxes and charges.

“Without these reforms, cities will continue to suffer financially,” Mhaske warned. “Encouraging tax compliance is not only about revenue—it empowers citizens to demand better services and strengthens democratic governance.”