SARVAJANIK EDUCATION SOCIETY
SARVAJANIK COLLEGE OF ENGINEERING & TECHNOLOGY
SURAT affiliated with
Gujarat Technological University
AHMEDABAD
P. G. CENTER IN
FACULTY OF CIVIL ENGINEERING
“Property Tax”
In the partial fulfillment of the requirement for the award of degree of
MASTER OF ENGINEERING TOWN AND COUNTRY PLANNING – I SEMESTER – II
Submitted under
Urban Governance Development Management
(Course code-2724812)
GAJERA JIGESH DALSUKHBHAI
(Enrolment No.170420748004)
M. E. (TCP) Semester – II
By:
Under the guidance of
Prof. Palak S. Shah
Ad-Hoc Assistant Professor in FCE
(May, 2018)
Property Tax 2018
Faculty of Civil Engineering
SARVAJANIK COLLEGE OF ENGINEERING AND TECHNOLOGY, SURAT
(2017-18)
Declaration
I hereby declare that the work being presented in this Graduate Report entitled “Property
Tax” by Gajera Jigesh Dalsukhbhai, of Semester – II, ME (Town & Country Planning) - I
bearing Enrolment No: 170420748004 submitted to the Faculty of Civil Engineering at
Sarvajanik College of Engineering and Technology, Surat; is an authentic record of my
own work carried out during the period of Even semester 2017-2018 under the supervision
of Ad-Hoc Assistant Prof. Palak S. Shah.
Neither the source there in, nor the content of the seminar report have been copied or
downloaded from any other source directly. I understand that my result grades would be
revoked if later it is found to be so.
______________________
GAJERA JIGESH DALSUKHBHAI
(Enrolment No: 170420748004)
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Property Tax 2018
Faculty of Civil Engineering
SARVAJANIK COLLEGE OF ENGINEERING AND TECHNOLOGY, SURAT
(2017-18)
Certificate
This is to certify that Graduate Report entitled “Property Tax” is presented and report is
submitted by Gajera Jigesh Dalsukhbhai of Second Semester for partial fulfillment of
requirement for the degree of MASTER OF ENGINEERING IN TOWN & COUNTRY
PLANNING of Sarvajanik College of Engineering and Technology, Surat during the academic
year 2017-2018.
Prof. Palak S. Shah Prof. (Dr.) Pratima A. Patel
Ad-HOC Assistant Professor Professor and Head
Faculty of Civil Engineering Faculty of Civil Engineering
External Examiner
Date: ______________
Place: _________
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Table of Contents
Declaration ....................................................................................................................................... i
Certificate ........................................................................................................................................ ii
1 Introduction ............................................................................................................................. 1
2 Need of Property tax ................................................................................................................ 2
3 Components and Important Aspects of property Tax .............................................................. 2
3.1 Tax Base ........................................................................................................................... 2
3.2 Tax Rate: .......................................................................................................................... 2
3.3 Tax Coverage: .................................................................................................................. 3
3.4 Tax Collection System: .................................................................................................... 3
4 Types of property Tax ............................................................................................................. 3
4.1 Real Property Tax............................................................................................................. 3
4.2 Personal Property Tax ...................................................................................................... 3
4.3 Other Taxes ...................................................................................................................... 4
4.3.1 Rollback Taxes.......................................................................................................... 4
4.3.2 Public Utility Tax ...................................................................................................... 4
5 Advantages and Disadvantages of Property Tax ..................................................................... 5
5.1 Advantages of Property Tax ............................................................................................. 5
5.2 Disadvantages of Property Tax ........................................................................................ 5
6 Uses of Property Taxes ............................................................................................................ 7
6.1 A source of local revenues ............................................................................................... 7
6.2 Support for other functions .............................................................................................. 8
6.3 Rural property taxes ......................................................................................................... 8
7 Calculation of Property Tax in Surat, Gujarat ....................................................................... 10
8 Concluding Remark ............................................................................................................... 14
9 Reference ............................................................................................................................... 14
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1 Introduction
Property tax is the annual amount paid by a land owner to the local government or the municipal
corporation of his area. The property includes all tangible real estate property, his house, office
building and the property he has rented to others.
Property tax is an annual tax on real property. It is usually, but not always, a local tax. It is most
commonly founded on the concept of market value. The tax base may be the land only, the land
and buildings, or various permutations of these factors. For the purposes of this guide, property
tax is restricted to annual taxes and excludes one-off taxes on transfers, on realized capital gains
or betterment, or on annual wealth taxes.
Property tax has been in existence for at least three millennia. It is common throughout the world
and has often been the subject of political debate. The strengths and weaknesses of this type of
tax are well known and possibly more widely understood than any other tax.
Several characteristics of property taxes have contributed to their declining relative importance
in the 20th century. The maximum yield presently achievable appears on the basis of experience
to be less than 12 percent of total national tax revenues, although the actual potential will vary
according to the specific structure and incidence of taxation within any given jurisdiction. It is
useful to understand these characteristics when designing a new tax or seeking to bring about
improvements in existing systems. There is much to learn from the experiences of other
countries.
In India, the municipal corporation of a particular area assesses and imposes the property tax
annually or semiannually. The tax amount is based on the area, construction, property size,
building etc. The collected amount is mainly used for public services like repairing roads,
construction schools, buildings, sanitation.
Central government properties and vacant property are generally exempt. Property tax comprises
taxes like lighting tax, water tax and drainage tax.
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2 Need of Property tax
As observed by McCluskey (1999), “The property tax is a unique mechanism for local revenue
generation. The primary store of accumulated wealth in both developed and developing countries
is in real estate. Such property is visible, immobile, and a clear indication of one form of wealth.
The property tax is thus difficult non-distortionary, to avoid or to shift and if well administered
can represent and highly efficient fiscal tool.”
Property Tax is a space-specific tax and not subject to constant fluctuations in its returns
therefore it can be a very reliable revenue source for local governments.
3 Components and Important Aspects of property Tax
1. Tax base
2. Rate
3. Coverage
4. A tax collection system
3.1 Tax Base
The valuation of land and buildings is the base for Property Tax.
The choice of a Property Tax base whether annual rental value or capital value or standardized
area base tends to relate to social and political processes or concerns.
Consequently, one can observe different countries adopting different bases for Property Tax
assessment, there is a definite preference for the capital value base of Property Tax. A municipal
body may select a particular base for Property Tax, but it should also be kept in mind that the
purpose of property valuation is only to arrive at the relative value of properties at a given time.
3.2 Tax Rate:
There is no one way to factor the correct rate for Property Tax. Concentrating on the proper
valuation of property to avoid underestimation of the tax base and to levy tax at lower rates
seems a better practice than to have high tax rates and a narrow tax base
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3.3 Tax Coverage:
Coverage is another very important component of any tax. There should be an attempt to bring
each and every property onto the Property Tax books.
Tax coverage was conventionally achieved through field survey by tax inspectors, but recent
innovations such as the use of geographic information systems (GISs) and information
technologies for tax mapping and self-reporting from property owners
3.4 Tax Collection System:
Although the tax collection system is obviously a very important component of any tax system, it
is the most inefficient aspect of Property Tax in developing countries.
The tax collection system consists of an enforcement mechanism, stringent recovery provisions,
and penalty provisions, which are weak in developing countries.
4 Types of property Tax
4.1 Real Property Tax
Real estate taxes are collected by the Montgomery County Trustee's Office on an annual basis
beginning the first Monday of October each year, through the last day in February of the
following year. It is the responsibility of each taxpayer to ensure that his/her taxes are paid
timely whether or not a tax notice is received.
The Montgomery County Assessor of Property establishes the assessed value of property, and
the Board of Commissioners set the tax rate. Once the Assessor certifies the assessment roll and
the tax rate is set, the Trustee applies the tax rate to every $100 of assessed value. The Trustee
prints and mails tax notices to the last known mailing address. In cases where the property owner
pays through an escrow account, the mortgage company normally requests the tax information,
and the owner receives the original notice for his/her records.
4.2 Personal Property Tax
Personal property taxes are based on temporary or moveable property such as furnishings, office
machines, computers, telephones, vehicles and other items that are used by a company or a
person to operate a business.
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The tax is based upon information furnished to the Property Assessor each year by the business
owner. The Assessor of Property furnishes a schedule for each business owner to provide a
detailed list of all tangible personal property owned by the business. The Assessor of Property
determines the value of the personal property based on the information supplied.
It is the duty of the owner of the business to fully list all tangible personal property, to place a
correct value on the property and to sign and return the schedule prior to the due date. If the
schedule is not returned prior to the due date, a forced assessment is made. The personal property
tax is due and payable in its entirety if business was open for 1 day in calendar year.
4.3 Other Taxes
4.3.1 Rollback Taxes
Rollback taxes are assessed when a parcel with a Greenbelt classification becomes nonqualified
by virtue of a change in use. The rollback tax is based on the amount of tax saved by the
difference in the Greenbelt value and the market value of the property.
The rollback tax includes the preceding three years for agricultural and forest land and the
preceding five years for open-space land. Unless otherwise stated in a written contract, a seller is
liable for the rollback taxes if, as a result of the sale, the property no longer qualifies as
Greenbelt.
If a buyer converts the property from Greenbelt use after the sale takes place, the buyer is liable
for any rollback taxes. Further, a buyer who declares in writing at the time of sale an intention to
continue the greenbelt classification, but fails to file the necessary form with the Montgomery
County Assessor of Property within 90 days of the sale, rollback taxes are assessed and the buyer
becomes the sole responsible party for payment. Unpaid rollback taxes become a first lien
against the property no matter who is responsible for payment.
4.3.2 Public Utility Tax
Utility and Transportation Property Tax is based on an assessment made by a division of The
State Comptroller of the Treasury. Properties assessed include realty within the state owned by,
and all personal property used and/or leased by, railroads, public utility or transportation
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companies. Example: Water &/or Sewerage Tax, Electric Light, Freight/Private Car,
Taxicab/Transit, Railroads.
5 Advantages and Disadvantages of Property Tax
5.1 Advantages of Property Tax
It is technically and administratively possible to introduce and/or maintain in almost any
circumstances.
It is cheap to administer, and it is possible to aim for a cost yield ratio of 2 percent or
less.
It is very difficult to avoid or evade, and collection success rates of 95 percent are readily
achievable.
It is transparent.
The public understand the concept of market value (whether capital value or rental value)
and therefore appreciate the basis of assessment.
In general there is a good correlation between assessed value and the ability to pay.
If designed correctly the tax can be marginally progressive.
The revenue is predictable and buoyant.
It is very well suited as a source of locally generated revenue for local governments.
5.2 Disadvantages of Property Tax
The disadvantages of property tax are less clear than the advantages. The tax is not perfect and is
often not popular; although it should remembered that there are no perfect taxes and taxation is
never popular.
Some of the advantages incorporate hidden disadvantages. The transparency of the tax reveals
any inconsistencies which may become magnified in public perception. These inconsistencies
will be both those of assessment (which are inevitable in a valuation list which may consist of
thousands or hundreds of thousands of assessments) and those of ability to pay. Other taxes, such
as income tax, are very much less consistent in practice but the public only know how the tax
should work and not how it is actually applied in practice. Confidentiality hides the actual
results. With property tax the public see the tax system working with all its imperfections. In a
similar way the difficulty of avoiding or evading property tax may make it unpopular. This is
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particularly the case in societies where the rich and powerful are accustomed to manipulating the
tax system for their own advantage. These persons tend to be the most articulate and politically
influential and may effectively oppose or undermine the equitable operation of the tax at the
political level.
There is also a more subtle and less well-understood shortcoming. The American war of
independence was fuelled by the cry of "no taxation without representation". In some
circumstances property tax can provide "representation without taxation" for a large segment of
the population. Universal suffrage means that not every voter will be a property tax payer. In
some circumstances non-taxpayers may greatly outnumber taxpayers, which damages the
democratic link between democracy and taxation at the local level. There is no sanction on non-
taxpayers voting for high tax policies. The adverse effects of this will be magnified if property
tax forms the only part of total local revenue over which the local authority has control. In this
case, a modest increase in total revenues may require large increases in individual property taxes
because of the small number of tax payers.
There is also the problem of building "buoyancy" into property tax. In theory buoyancy is a
function of two mechanisms. The first of these is the revaluation of properties at regular
intervals. The second is the increase in the rate of tax to produce the needed revenue. Both are
highly political. In theory either one or the other could provide buoyancy. It is technically
possible to increase tax rates on an out-of-date valuation list. However, it is known from
experience from many countries that the public do not understand and do not accept an out-of-
date valuation list. Nonetheless there is always resistance to revaluations and the more out of
date the list, the greater the resistance. The biggest factor behind declining yields for property
taxes in OECD (Organisation for Economic Co-operation and Development) countries and
others is the failure to carry out revaluations.
The difficulties of implementation should not be underestimated. Although the technical
difficulties can be overcome, they can restrict progress, especially in the early stages of
implementation. Such technical factors include:
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The system is dependent upon a pool of technical expertise (of which there is often a
shortage) to create and maintain a valuation roll, and to establish and conduct the appeals
process.
Parts of the process can be time-consuming and expensive, for example, compiling a
comprehensive list of rateable properties (especially where records are poor or
incomplete, or where there are a large number of legal status issues), outsourcing services
to the private sector, establishing a valuation tribunal, and administrative and
infrastructure support (such as dedicated information technology systems for both the
valuation and the financial accounting system for the billing, collection, and enforcement
procedures).
While it is true that the public generally understands the concept of market value,
confusion does arise in the relationship between 'rateable value' and setting the 'rate'. This
is particularly so where revaluations take place after a long interval, and/or where there
has been political unwillingness to increase the rate. This often manifests itself in large
numbers of ill-founded appeals.
6 Uses of Property Taxes
6.1 A source of local revenues
Throughout the world property taxes are commonly employed as the main source of locally
generated revenue for the good reason that there is no other major source of taxation revenue that
is exactly geographically defined. It is possible to use local income taxes and/or local sales taxes
for generating local government revenue but both have difficult administrative problems. Local
revenue may be generated from other sources, particularly rents from local government owned
properties. In some cases, local income taxes are an important source of revenue. In many cases,
however, property tax is the main source of revenue (and even when local income taxes exist, it
may be easier for a local government to modify the property tax rate than to adjust the income
tax rate).
As a primary source of revenue, property tax plays an important role in decentralization and the
autonomy of local government. Full decentralization of government incorporates the power to
raise revenue independently in addition to powers allowing local governments to use the funds as
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they see fit (in accordance with the limits of their legal powers). In practice, local government
autonomy is always limited. The duties of local governments are almost invariably such that it is
impossible to discharge them without central government grants which detract to a greater or
lesser extent from their independence. Increasing independent powers of raising revenues
through property taxes thus becomes important.
6.2 Support for other functions
Valuation lists' compiled for local government may be used by other bodies, particularly those
that can be termed "single function authorities" such as Water Boards. Water charges are
commonly based on the assessed value in the valuation lists. Such procedures are very cost
effective and may have a reasonable correlation with water usage in many circumstances
(although cases do exist where commercial and industrial properties have low water
consumption but have relatively high values). Drainage boards can also be funded by charges
related to the valuation list, which has advantages over charges related only to the surface area of
the property.
Valuation lists may be used in transitional economies for other purposes such to establish lease
rates on government owned land. Where land markets are not yet developed, mass valuation
results can also be used as a basis for establishing market values for properties.
In addition, local bodies may have to take over functions previously controlled and administered
centrally (such functions include local drainage boards, common grazing facilities, and
consolidation bodies). They are not able to rely on central government funding and have to raise
their own revenue. Depending on the tax rates and cost of collection, valuation lists may provide
a fair and cost effective basis for doing so.
6.3 Rural property taxes
There are sound reasons for introducing or extending property tax into rural areas:
Property tax provides a basis for local autonomy and facilitates decentralization
It provides a revenue base for single function authorities
It encourages the economic use of land
It tends to reduce land and property prices thus facilitating access to land
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Apart from agricultural land and buildings, rural property tax may be applied to
commercial, industrial and residential properties located in rural areas.
Almost invariably the benefits of rural property tax will be local rather than national. It
will be apparent in almost every country, including those in transition, that the extension
of the property tax net into rural areas will have limited impact on the total national tax
revenue. The rural tax base is very much smaller than the tax base constituted by the
urban economy. Frequently a national capital city and two or three other major cities
produce a major part of the GDP. The relative size of the regional GDP gives a good
indication of the magnitude of the tax base. Thus if for instance an improved property tax
covering the entire country has a potential to produce 10 percent of total tax revenues, the
proportion arising from rural areas is unlikely to be more than 20 percent of this. Even in
such circumstances the rural property tax base will constitute only 2 percent of the
national tax total and be more proportionately expensive to administer.
In most instances the above illustrative figures will overstate the potential yield from
rural areas. However, this does not diminish the importance of a rural property tax. It is a
vital part of decentralization. It is not so much its size relative to the national tax base but
its magnitude in relation to local revenues especially those locally generated revenues.
This is why it is a vital instrument in improving rural livelihoods.
In most transition countries the issue of property tax in rural areas will be linked with
agriculture. First, there tends to be a carry-over from the socialist period of the emphasis
on primary industries. Many will tend to believe that agriculture is more important in the
national economy than is the case. Second, there may be a belief that exempting
agriculture from tax will reduce food prices although there is little evidence that it has
ever done so. Economic theory suggests that the exemption tends to increase the price of
land relative to other assets and there is evidence that this is the case. Third, there can be
an erroneous belief that access to land is facilitated by exemption from tax. In practice,
tax relief causes the price of agricultural land to rise and makes it more difficult for
newcomers to gain access to farms.
There are few, if any, sound reasons for exempting agriculture from property tax. Most of
those commonly proposed do not bring about the desired result. Furthermore by
exempting agriculture damage is done to perceptions of the role of the tax as a fair way of
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apportioning local expenditure. It also renders it of little use for raising revenue for single
function authorities.
7 Calculation of Property Tax in Surat, Gujarat
Property Tax = R * M * A
Where,
R stands for the annual rate of property tax
M stands for the product of various sub factors = { (Factor 1) * (Factor 2) * (Factor 3) *
(Factor 4) }
A stands for the area of the property (sq. mt.)
Annual Rate (R)
For Residential Properties: Per square meter per annum – Rs. 10
For other properties: Per square meter per annum – Rs. 25
Area of the Property (A)
The area of property under assessment depends upon the carpet area of the property. While
calculating carpet area, whole area except area of the external as well as internal wall will be
considered.
Factors affecting the property tax
Factor 1: Factor depending upon the location.
Factor 2: Factor depending upon the duration of the year wise construction of property.
Factor 3: Factor depending upon the kind in case of residential property and use in case
of Non-residential property.
Factor 4: Factor depending upon usage person/entity.
Factor 1: Market Location
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Market Location Factor Value
A (Athwa, Majura, Bhatar, Piplod) 1.50
B (Rander, Adajan, Nanpura, Muglisara, Varacha) 1.30
C (Katargam, Bamroli, Umarwada, Vesu) 1.10
D (Pal, Sarthana Jakatnaka, Mota Varacha) 0.90
E (Amroli, Kosad, Utran) 0.70
F (Budia) 0.50
Factor 2: Age of Property
Sr. No Age of Property Factor Value
1 0 TO 10 1.00
2 11 TO 20 0.90
3 21 TO 30 0.80
4 31 TO 40 0.70
5 41 TO 50 0.50
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6 51 TO 60 0.40
7 Above 61 0.30
Factor 3: Property Type
(A) Residential Property Factor Value
1 Individual Bunglow 1.00
2 Duplex Bunglow 0.85
3 Row House 0.70
4 Apartment/Flat 0.60
5 Gala Type R.C.C. 0.40
6 Gala Type Non R.C.C. 0.30
7 Slam-RCC & Non RCC-Not 0.10
exceeds 25 Sq.Mt.
8 Open Plot 0.10
9 Parking 0.00
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(B) Other than Residential Factor Value
Properties
1 Commercial 6.00
3 Government 3.00
4 Industrial 2.00
6 Recreation 2.00
7 Educational & Health 0.50
8 Open Plot 0.50
9 Educational & Health-Grant 0.10
in Aid Institution
10 Agriculture 0.001
11 Religious 0.000
Factor 4: Occupancy
Occupier Factory Value
Owner 1.00
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Residence Tenant 1.00
Non Residence- Owner 1.00
Non Residence- Tenant 1.75
Bank- Tenant 7.00
Mall-Tenant 2.50
Microwave Tower-Tenant 15.00
8 Concluding Remark
For Improving Information regarding Property Coverage, We can use geographic
information systems (GISs) and information technologies for tax mapping and self-
reporting from property owners.
Improvising Tax collection system by Penalty Provision, Which are Weak in Developing
Countries like India.
As a primary source of revenue, property tax plays an important role in decentralization
and the autonomy of local government.
9 Reference
i. February 2002. “Property Tax Reform Options and Issues.” Paper presented at the
National Seminar on Reforming the Property Tax, United Nations Development Program
and National Institute of Urban Affairs, Bangalore - India
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ii. Bagachi Soumen (2003), ‘Politics and Economics of Property Taxation’, Paper presented
at the 3rd International Convention of Asia Scholars organised by the National University
of Singapore, August 19-22, 2003.
iii. Dillinger, William (1991), Urban Property Tax Reform: recommendations and
guidelines, Washington DC: World Bank
iv. Ravindra A. and Vasanth Rao (2003), ‘Reforming the Property Tax’, Study Report,
National Institute of Urban Affairs. New Delhi: UNDP
v. Book: Municipal finance in the metropolitan cities of India, JAI BHAGWAN
vi. Surat Municipal Corporation
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