The Sixth State Finance Commission constituted to review the financial position of rural and urban local bodies, has recommended 14 key reforms for the civic bodies to be implemented before June 2024 with the support of the respective departments. The state government has accepted 11 of these recommendations. If these reforms are not implemented by the due date, the annual quantum of Special Grants to be administered at the state level should be reduced by 20% from 2024-25 onwards, the Commission said.
In all, the Commission has made 280 key recommendations to the state government, of which the state has accepted 259. Some recommendations have been accepted with modifications, while some have been deferred.
The key reforms include the creation of land banks of government lands, GIS mapping of all ULBs to bring left-out properties under assessment, creation of Asset Registers and making them available online, bifurcation of large village panchayats based on population, levying of a surcharge on stamp duty on certain documents and developing a comprehensive software for accounting and transactions for all local body funds.
Authorising local bodies to grant permission for advertising, developing a comprehensive software for accounting and transaction for all local body funds, ensuring untied devolution to local bodies, and collecting at least 75% arrears of house taxes as on April 1, 2022, and 75% of current demand of house tax in 2023-24 are also among the recommendations.
Though the Commission recommended the state government devolve 10% of the State's Own Tax Revenue (SOTR) to the local bodies, the government has accepted this recommendation with a modification that the existing practice of devolving 10% of the Net SOTR shall be continued. Similarly, the Commission recommended that of the total devolution amount, 49% should be devolved to RLBs and 51% to ULBs. However, the government decided the devolution between RLBs and ULBs should be fixed at 51:49 respectively.
The Commission has made a few critical recommendations regarding the augmentation of local bodies' own revenue. "Local bodies in TN have very low rates of taxes and service charges. The revisions have been deferred for decades. The Commission thinks that not only for their fund requirements for service delivery but for their functional autonomy and also their own revenue augmentation is critical. If the revision of these taxes is demonstrated with better service delivery, the Local Bodies can look forward to higher voluntary compliance from their residents," the Commission added.
The Commission also recorded its displeasure over the unimplemented recommendations of the previous State Finance Commissions, even after the government's acceptance. "The follow-up mechanisms and incentive structures are weak. Few recommendations remain completely neglected until the next State Finance Commission considers them afresh. The Commission has recommended some new institutional arrangements and incentive structures to ensure time-bound implementation and follow up of the recommendations," the Commission said.
The Commission underscored the point that in the post-pandemic period, while the economy would still be recovering, the resources of the state government would continue to be strained, at least in the medium term. "It is essential that in times when state budgets are on a tight string, the dependence of local bodies on state resources, even for basic service delivery and operations, need to reduce. The only way to do that is to harness the untapped potential of their own revenue sources," the Commission added.
Key recommendations of the 6th State Fin Commn:
* Online tax payment should be enabled for all village panchayats, latest from April 1, 2024
* Tribunals should be constituted at the block level to settle issues on tax assessments
* Robust property database should be created with unique property identifiers using the existing GIS maps
* Large Village Panchayats should be bifurcated based on population
* The government should levy a surcharge on stamp duty on certain documents
* Water Charges should be revised to at least Rs.9 per kl from Rs.8.1 per kl for RLBs, and Rs.14 per kl from Rs.10.4 per kl for ULBs with a minimum of 5% annual increase moving forward
* At least 75% arrears of House taxes as on April 1, 2022, and 75% of the current demand of house tax in 2023-24 should be collected
* Within the local bodies, land banks of all government lands should be created
* GIS mapping of all ULBs to bring left-out properties under assessment should be completed in all municipalities and corporations. This should be implemented in Corporations within a period of two years.
* Asset Register should be undertaken, and the completed register should be made available online
* Properties for levying of tax should be categorised as Residential, Commercial, and Industrial as in the ULBs
* House Tax collection in RLBs should be linked with the cost of service delivery for services such as streetlight maintenance and regular water supply
* The RLBs should issue house numbers for newly constructed houses bi-annually to ensure that all new houses are brought into the tax net
* Un-assessed buildings should be brought under the tax net by comparing them with the list of electricity service connections and commercial taxes registration list
* All buildings of Central government organisations, educational institutions, and State government organisations should be brought under the property tax net
*Windmills, land, and buildings on which cell phone towers are erected should be taxed at rates applicable to commercial buildings
* The Commission recommended that the State government continue devolving 10% of the State's Own Tax Revenue to the Local Bodies. But the government has accepted this recommendation with a modification that the existing practice of devolving 10% of the Net State's Own Tax Revenue shall be continued
* The Commission said of the total devolution amount, 49% should be devolved to RLBs and 51% to ULBs. However, the government decided that the devolution between RLBs and ULBs is fixed at 51:49, respectively