Maharashtra plans impact fee on lucrative land parcels in Mumbai

Impact fee will be charged at the time when the land in the designated benefit zone is sold or developed


Benefit zones are areas where the landowners are expected to benefit an appreciation in property prices due to its proximity to big-ticket infrastructure projects. Photo: Mint
Benefit zones are areas where the landowners are expected to benefit an appreciation in property prices due to its proximity to big-ticket infrastructure projects. Photo: Mint

Mumbai: The Maharashtra government is considering a plan to levy an impact fee on land owners in areas designated as benefit zones in Mumbai.

Benefit zones are areas where the landowners are expected to benefit an appreciation in property prices due to its proximity to big-ticket infrastructure projects, said U.P.S. Madan, commissioner of Mumbai Metropolitan Region Development Authority.

The impact fee would be a direct levy imposed on the landowner and will be charged at the time when the land in the designated benefit zone is sold or developed.

If approved, this will be the first such levy to be imposed in India.

The proposal which is being drafted by the state urban development department will be presented in the state cabinet soon, said Madan, declining to comment on the time period over which the government will finalize the plan.

Mint could not independently verify this with the department.

Various models are being considered to determine the best one that will allow the government to share the benefits of asset price rise due to an infrastructure project, said Madan.

The options include an impact fee to be levied on the landowners; an infrastructure fund where a certain share of the financial gains that a landowner has made exclusively due to the infrastructure project will be deposited; or a chargeable floor space index (FSI) based on transit-oriented development (TOD) charges.

TOD charges are those levied on areas which are in close proximity to public transport corridors, such as metro or freeways, or where suburban railway or metro stations are located.

A proposal linked to TOD would involve charging premium for extra FSI, which determines the proportion of construction on a particular plot, in areas benefitted by infrastructure projects, particularly the mass transport projects.

“The urban development department is considering all options. They may go with one of these options or all of them. The idea is to help the government capture some part of the benefits that the landowners have made beyond the natural causes of appreciation and due to project implementation in certain areas,” Madan said.

Madan added the proposed levy aims to create a source of revenue for the agencies implementing the mega infrastructure projects.

The government is in the middle of many large-scale infrastructure projects, such as the Mumbai Trans Harbour Link, Mumbai metro corridors such as Wadala-Kasarvadavali (Thane) line and Colaba-BKC-Seepz line, the Navi Mumbai International Airport and the coastal freeway project between Nariman Point in South Mumbai and Kandivali in the far west.

Madan said the impact fee is normally levied when the project implementation starts but added that the final proposal might consider additional phases during which the levy could be imposed. “Details like the rate at which this levy gets calculated and imposed, the stage when it kicks in, and designation of the impact zones will be part of the final proposal,” he said.

An ex-IAS officer, who now works for a private consultancy, on the condition of anonymity said the government will have to be careful to avoid causing distortion in the land market. “It is a good idea and is being thought about for a long time. What typically happens after a big infrastructure project is announced is that the land prices in areas where the project is located see an immediate upward revision. This happened in Navi Mumbai when the new international airport was announced. The land owners and developers make good on such announcements, but the government gets no return on its investment,” said the former bureaucrat.

“The idea of impact fees is good but the government should be careful in levying it. It should not be seen as a government intervention to distort the cost of land or land agreements in those areas,” the former government official added.

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