Trapped between the govt and a hard place: Here’s why Delhi’s corporations are in the red

New Delhi: At the core of the ongoing tussle between the AAP government and the three municipal corporations of Delhi is money, or the lack of it. While the Arvind Kejriwal-led government maintains that it has already given Rs 892.92 crore, Rs 465.53 crore and Rs 668 crore to North, East and South MCDs respectively under the head of non-planned expenditure in the current financial year, the civic bodies say they still need Rs 2,400 crore for the payment of salaries and pensions.

"They (the Delhi government) still have to give Rs 1,920 crore to North Delhi Corporation and Rs 853 crore to that of East Delhi," Satish Nayar, deputy controller of accounts, told Firstpost.

A file photo of workers of Delhi's civic bodies protesting. PTI

A file photo of workers of Delhi's civic bodies protesting. PTI

He said South DMC is a little "better off" and has barely managed to keep itself "out of red" because its tax collection is higher. "The other two civic bodies, North and East, are on the verge of bankruptcy and have no financial support," he added.

What drove the corporations to this precarious situation? Firstpost spoke to several persons familiar with revenue matters in the corporations. They cited some reasons why they have run into financial deficit. All of them say the trouble intensified with the trifurcation of the unified MCD in 2012. But the problem goes back to to many years.

1. The budget of unified MCD was Rs 6,200 crore, which almost doubled to Rs 13,400 crore after the trifurcation. It resulted in additional expenditure on creation of three sets of all departments, including posts of mayor and commissioner. Standing committees and other ad hoc committees too were created, resulting in spiking up the establishment cost three-fold.

2. The trifurcation should have been done equally. Since the city has 270 wards, the three corporations should have 90 wards each. But it is not so – while the North and South MCDs have 104 wards, East MCD has 64 wards. This unequal distribution resulted un-uniform distribution of sources of income and expenditure in the three corporations.

For instance, East MCD is the most cash-strapped because it covers one-third population of Trans-Yamuna, which houses a majority of unauthorised colonies and settlements and has comparatively higher number of employees. North MCD covers almost half the city but it gets little revenue because it mostly houses embassies, residences and etc which are tax exempted.

3. Taxes have been divided between different categories (A to H) and are collected on the basis of ‘Unit Area Method’ (UAM) that further reduced the income of North and East MCDs because categories A and B, higher tax payers, went to SDMC, which has major business establishments like five-star hotels, farm houses, etc. Now, the revenue collection has gone down and expenditure has increased.

4. The corporations have also suffered revenue loss after adopting the UAM of property tax computation in April 2004. Collections under the older ‘Ratable Value Method’ (RVM) were significantly higher.

With the implementation of the UAM, the civic bodies were asked not to send tax inspectors to collect taxes from each household across the city and its payment was left with people. As a result, of the total 35 lakh individual tax payers, only 11-11.5% turn up for to pay tax. And there is no way left to collect tax from defaulters. It caused a loss of thousands of crores.

“Earlier, we used to charge tax around Rs 1.5 crore from five-star hotels but now it has gone down by around 30% to stand at somewhere between Rs 30-35 lakh. We had been assured Rs 1,285 crore as a grant to compensate the losses but the amount was never released,” said Nayar.

6. The corporations’ decision to impose property tax in un-authorised colonies were opposed by the government and finally withdrawn. The government perhaps failed to understand the fact money from sales tax, property registration and excise goes to it while MCDs have to depend on property tax only.

7. In 1993, ‘Terminal Tax’ was revoked that caused further revenue loss. “We used to collect this on behalf of the Ministry of Home Affairs (MHA), which used to give us 6% of the total tax collection.

8. Earlier, on every sale and purchase of property in the city, the MCD used to earn from Transfer Duty. Because of trifurcation, the circle rates went up and properties stopped changing hands frequently. It also caused the civic body a major loss.

Updated Date: Feb 02, 2016 14:08 PM

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