NAGPUR: Commercial establishments operating from rented premises are in deep trouble. Nagpur Municipal Corporation (NMC) is levying 20 times higher property tax to many such properties. This is due to the flaws in the existing property tax system, and inordinate delay in implementing the capital-based property tax system. Adding to the troubles, the civic body is charging high property tax with retrospective effect.
The problem started when NMC property tax department started to charge property tax of commercial establishments on the basis of their rent from this fiscal. Interestingly, this provision has been in place since 1997, but the revenue deficit due to failed local body tax (LBT) finally forced NMC to implement it.
The property tax department's sudden move has sent ripples among entrepreneurs. A software company operating on rented premises near Aath Rasta Square is a fine example. NMC Laxmi Nagar zone's property tax department used to charge the premises just Rs9,452 property tax per annum for an office spread over 1,350 sq ft. Then, the department sent a demand note asking the firm to pay Rs5.34 lakh as tax within a month. The firm was even warned that a fine of 2% interest per month would be levied in case it fails to pay the tax within 30 days.
The department levied Rs1.94 lakh property tax for 2013-14, even when it was just Rs9,452 a year ago, a rise of over 20 times. An amount of Rs3.40 lakh was also levied as arrears of last two fiscals, 2011-12 and 2012-13. The department said the new amount will continue in the coming years, and will be revised in line with the monthly rent.
A senior NMC official told TOI the department started reassessing property tax according to rent agreements executed between the owner and tenant. "The software company was operating since 2011-12 and paying Rs30,000 rent per month, which comes to Rs3.60 lakh per annum. Annual letting value (ALV) of the property is calculated by deducting 10% maintenance charges from total rent of one year. Total 31% of the amount is fixed as general tax. Five other factors are added on ALV to derive property tax amount of one year," he said.
Going by this system, the property tax in a year is roughly equivalent to six months rent. The tenants usually pay the property tax, thus increasing their rent by some 50%.
One of the company owners, Siddharth Nakade said they have no option but to cancel the rent agreement and shift to another city. "We submitted correct information of rent being paid to the owner and became victims of innocence. Even NMC officials are laughing at us. I gave up my green card to shift from the US to Nagpur. We established a company by taking loans and investing whatever we had. And now I am being forced to pay tax of Rs5.34 lakh as against last year's amount of Rs9,452. NMC itself collected Rs9,452 tax over last two years, but is now revising the amount. It might demand more next year. I think the civic body wants to force all commercial establishments to flee the city instead of encouraging people like us," he said.
This software company is not the only case. NMC Laxmi Nagar Zone comprises 66,594 property taxpayers. Similar reassessment has been done on 1,630 properties, including 700 flat schemes, 38 banks, 29 telecommunication towers, 15 educational institutions, four lawns and hotels. The zone office is planning to levy the same system on remaining rented properties too. Similarly, the other nine zones are also applying the system in their areas.
Admitting the high tax, municipal commissioner Shyam Wardhane said implementation of capital-based property tax system is the only solution. "Pune Municipal Corporation charges 40% more than what we charge from a rented property. New system will ease the problems," he said.
NMC sources told TOI the BJP-led ruling alliance is to be blamed for this. The state government had directed all civic bodies to implement capital-based property tax system in 2010. But the ruling alliance delayed the system till 2012, fearing public wrath in municipal elections. Now, the system is being delayed due to the general elections in the coming few months.