The Karnataka Administrative Reforms Commission has suggested that the state government impose a 1 percent sports cess on property tax across all urban local bodies in the state.
Being one of the first sports cesses proposed in the state, experts say that while it may not affect property prices, it raises questions about the rationality of various cesses already in place on property tax.
With property tax being the largest source of revenue for the Bengaluru civic body, experts suggest that data-driven budgeting and efficient tax collection can reduce dependence on cesses.
A cess is a tax that is levied on another tax component for promoting services like health and education. Governments often charge a cess for development in social sectors.
What has happened?
The commission headed by former chief secretary T M Vijay Bhaskar said in a report presented in December 2022: “The Department of Youth Empowerment and Sports (DYES) budget is inadequate to meet the needs of youth, especially in big cities. There is a mushrooming of private playfields, and sports facilities charging exorbitant user fees.”
Therefore, the report recommended that the DYES prepare proposals for amending the Bruhat Bengaluru Mahanagara Palike (BBMP) Act, the Karnataka Municipal Corporations Act, the Karnataka Municipalities Act and the Karnataka Gram Sabha and Panchayat Raj Act to insert a provision to levy a 1 percent sports cess on property tax.
What are other cesses on property tax?
Currently, BBMP is collecting five different cesses on property tax: 15 percent health cess, 6 percent library cess, 3 percent beggary cess and 2 percent land transport cess.
In addition, the corporation is also collecting Rs 400-600 cess on solid waste management depending on the property and location.
A senior BBMP official told Moneycontrol: “The total target for property tax collection for this year will be Rs 4,189 crore. About 26 percent, or Rs 1,089 crore, will be collected in addition as cesses.”
BBMP said the civic body is unlikely to meet the property tax target as it had only collected about Rs 3,050 crore (including cesses) as of February 10.
Why was sports cess suggested?
Reeth Abraham, an Arjun awardee and a former Asian medalist in the long jump and 100 meters hurdles, said: “The current sports stadiums in the state are poorly maintained. In the last two decades, several associations and government bodies have failed to maintain the basic infrastructure in the state.”
Bhaskar estimates that this cess will allow the government to raise about Rs 50 crore annually.“It can become a regular source of funds for the sports authorities to strengthen the sports infrastructure. Maximum allocation will be in Bengaluru, of about Rs 25 crore.”
Although the revenue won’t be used to build more stadiums, it will especially help upgrade existing ones, and also procure basic amenities like sports equipment for rural Karnataka, he added.
Experts raise municipal budgeting, cess concerns
Out of BBMP's current total budget outlay of Rs 10,480 crore for 2022-23, the municipal body set aside almost two-thirds, or Rs 6,911 crore, for the Public Works Department (PWD) and Rs 1,469 crore towards solid waste management.
With such a high allocation for the infrastructural push, experts argue that data-driven budgeting can lead to proper taxation, and help avert the cascading effect of cesses.
Still dependent on state allocations, municipal bodies in Karnataka confront a cash crunch.
“The only source of revenue they have are their own sources -- namely taxes -- and even then, the collection efficiencies are quite low,” said Namita Aggarwal, manager of municipal finances at the urban affairs think tank Janagraha.
Additionally, in 2020, she said the state reduced the residential property tax component from 20 percent to 10 percent.
In such circumstances, clubbing each tax component on property tax -- the largest source of revenue for BBMP – together would offer a quick solution to the shortage of funds.
Experts suggest taxation and cesses are primary ways of reducing dependence on property taxes.
Ashwin Mahesh, an urban affairs expert, agrees. “Globally the property tax component is 1 percent of the property value, for example, for a Rs 1 crore property, the property taxes should be at least Rs 1 lakh. In comparison, Bengaluru is collecting only a fraction of Rs 6,000-8,000 in property tax to help the municipal body keep the city running,” he added.
Sapna Karim, head of civic participation at Janagraha, added that municipal budgets need to be data-driven and holistically look at medium-term fiscal plans for at least 3-5 years.
“Over the last decade, BBMP never crossed their targets at property tax collection -- even as the city has grown and properties are being added,” Karim said.
“The potential for the property tax increase is crucial for government bodies to fulfil aspirations for infrastructure and services. If the municipal bodies are not meeting their financial targets, all existing allocations go into salaries or internal accruals. At this point, investments in new projects are largely delayed,” she added.
Aggarwal said primary taxation needs to be higher and cesses need to be rationalized.
Abhishek A Rastogi, an advocate at Rastogi Chambers, agrees that imposition of any cess leads to tax cascading, and must be avoided as far as possible.
“While the cess certainly gives additional revenue to the state, it leads to an additional burden on the consumers,” he added.
Sukruth S, a chartered accountant in Bengaluru, said, “The rental prices in Bengaluru have become stagnant. Especially with rising home loan rates, the additional sports cess on the property tax component will become a liability for residents -- even if the margin is comparatively low.”
Homebuyers like Ameya Usgaonkar are reluctant to pay the sports cess. “The Kanteerava Stadium is a major government-run stadium in Bengaluru, located more than 10 kilometres from where I live. How will we benefit if new stadiums are not built near me?”
Experts add that the proposed sports cess will not affect the property registration cost or stamp duties, keeping property values largely unchanged.
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