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Monday, July 26, 2021

Taxing Times

The background, reasons and context of the financial crisis in the East and North Delhi Municipal Corporations explained.

Written by Naveed Iqbal | New Delhi |
Updated: March 26, 2015 2:59:31 am
MCD-protest-l East Delhi councillors protest during a zone meeting. (Source: Express Archive)

Naveed Iqbal explains the background, reasons and context of the financial crisis in the East and North Delhi Municipal Corporations

What are the sources of revenue for the municipal corporations of Delhi?

Property tax is the principal source and biggest contributor. Parking and advertisement are the other major contributors. There are licensing charges, conversion charges, charges for clearing floor plans. Corporations take up projects on behalf of the state or Central government, such as sanitation or family planning, for which they are reimbursed. Then there is the “global share” taxes — 5.5 per cent of the taxes collected by the Delhi government goes to the three civic bodies as grant.

So why are the corporations so badly off?
Between 1998 and 2011, the Sheila Dikshit government took away a large chunk of the services offered by the Municipal Corporation of Delhi. Most of the corporations’ revenue-generating services — Roads (over 60 ft), Slum Department, Rural Development, development of unauthorised colonies, Delhi Jal Board, Fire Department — are now under the Delhi government. Subhash Arya, chairman of the Standing Committee of the South Delhi Municipal Corporation, has demanded a “return” of the civic services and authority that was granted to urban local bodies by the 74th amendment Act. Under the Act, state governments are required to amend municipal laws so that urban local bodies get “such powers and authority as may be necessary to enable them to function as institutions of self governance”.

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Also, some dues of the corporations are stuck. They were, for example, promised Rs 500 crore (to be shared by the three corporations), by the Union Urban Development Ministry for the Swachh Bharat Abhiyan, but nearly five months after the abhiyan was launched, no funds have been released. Also, under the Dikshit government, 1.5 per cent of the “global share” was held back, subject to administrative reforms such as e-governance and transparency. This money was not released as the government’s term expired. The remaining 4 per cent is yet to be disbursed.

Which corporation is in greatest difficulty? Why?
The sources of income of the erstwhile MCD were distributed unevenly during trifurcation. As a result, while the South Corporation enjoys a surplus of Rs 600 crore, the East Corporation, which is the worst off, is struggling to pay salaries to employees. The financial implications of the trifurcation were not thought through — the East Corporation received the largest share of the unpaid loans of the unified MCD. East Delhi Mayor Meenakshi says the government has not honoured its promise of financial aid to compensate for losses, only released a loan of Rs 335 crore. She says that not much is left of most grants after the interest on loans is skimmed off.

The East also loses out on property tax because most of its areas come in category H, the lowest of the eight categories into which properties in Delhi are divided. Tax on category H properties can be as low as Rs 100/sq m, and even lower after rebates for senior citizens and the specially abled are applied. East corporation’s annual property tax revenue is Rs 120 crore, a fifth of what the South corporation, which has properties in categories A-D, collects. The North corporation collects Rs 200 crore annually as property tax. Recently, North sent South a Rs 30-crore bill for shared services at their joint headquarters, the Civic Centre on Asaf Ali Road.

Also, the East corporation generates no revenue from the two hospitals and 390 schools it runs. By contrast, the South corporation runs no hospitals, even with its funds surplus of Rs 600 crore. Populist measures such as exempting black and yellow taxis from toll have bled the East further.

Now that the state and central governments have refused to help, what options do the corporations have?
According to East corporation commissioner Amit Yadav, the options are: (a) increase taxes, (b) increase the tax base, (c) revise upwards the classification of some areas to realise higher property taxes. (Preet Vihar, for example, is a category D colony, which can be revised to B or C.) However, the first two options will need clearance from the corporation’s Standing Committee and House. And elected representatives are not in favour of raising taxes.

How would the ordinary Delhi resident’s life be hit if the situation does not change?
In the salary model of the MCDs, Class IV employees are paid first, followed by Class III, II and I employees. No employee of the East corporation has received a salary for two months. In the North, at least 45 per cent have not been paid for a month. In January, a hunger strike by teachers of East corporation schools was called off after desperate intervention by the Mayor. On March 23, the East employees’ union went on strike, which seems likely to spread to the North as well. The Congress has joined the strike, and has said it would not allow the House to function until the employees are paid. If the strike is not called off, day-to-day functioning of the corporation will be hit.

This may take a toll on sanitation services, but is unlikely to affect schools and hospitals. The North and East civic bodies are not taking up any new development projects. Widow and old age pensions are delayed in the North and East municipal corporations.

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