Monday, July 21, 2008

Property and Other Taxes: The Use Priciple

I was updating my good friend, V Madhava Rao (he is an Engineer, MBA with about 40 years of industrial experience) about the meeting I attended on Property Tax. He started passionately describing the “Use Principle” as the basis for levying taxes. Rao had a totally different and radical view on the subject. Hearing what he was telling, I was dumb struck.The principle is that use of a facility should have a major weight and ownership a minor weight in the quantum of taxation. Since CVS relies only on ownership and a notional or a virtual inflated value for the property, it is unjust and could be often unaffordable. Any taxation should be based on usage, and on realized profits like rental income, and capital gains on disposal of property.Also, Municipal Corporations should look at revenue models beyond property tax like a levy on vehicles using the road, and hotels and other establishments who generate bulk of the garbage. Definitely, the Corporations should have adequate resources but it should come from a multiple set of usage based measures like Motor vehicles using the road. A good measure could be to collect a Cess on petrol, diesel, which would be a direct measure of usage, and also parking fee. Similarly a service tax can be levied on rentals, which the user pays.This concept of Use can be further applied to many other aspects.CVS is an economically inappropriate tax proposal and is disproportionate to economic benefits that the property generates, and hence not viable.

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Wife & Me in Hyderabad, India August 18, 2005

Wife &  Me in Hyderabad, India August 18, 2005
The Indian School of Business