Property owners may have to pay more taxes as govt proposes VCF policy
New Delhi: Property owners will have to shell out more money in the form of new taxes to be levied by the government in the wake of state-sponsored infrastructure projects pushing up the prices of land and buildings in the vicinity.
According to a proposed plan by the ministry of urban development, public investment in infrastructure projects like metro line, elevated road or railway project push up the property prices in a particular area. On the other hand, the state government and urban local bodies reportedly face shortage of funds, leading to sluggish infrastructure development. To tide over this financial problem, the ministry has formulated a fund raising scheme—value capturing finance (VCF) to capture a part of the increment in value of property due to public investment in infrastructure projects, it said.
"The VCF policy is an innovative method of financing and also a revenue generation tool. It will also help to meet the growing demand for resources to finance ongoing urban infrastructure expansion," urban development secretary Rajiv Gauba said.
Vacant land, commercial and residential properties would attract various charges like betterment levy, development charges, land value tax and fee for changing land use, he said. Gauba said the mechanism could also be used by other central ministries investing heavily in building national highways, railway projects, power generation and port infrastructure development.
Endorsing the scheme, the finance ministry has also issued an office memorandum stating, "The government has decided that VCF will be an integral part of detailed project report (DPR) of all projects of the central government."
The ministry has also revised the format for memorandum for proposals of projects to include the VCF mode of funding.
India requires about Rs3,25,000 crore of urban infrastructure investment annually, according to a McKinsey report. A high-powered expert committee, set up by the urban development ministry, in its report in 2011 had projected urban infrastructure requirement at 0.75%, which will increase to 1.5% of the GDP by 2032. In other terms, the investment requirement in urban infrastructure will increase from Rs97,500 crore in 2011 to Rs1,95,000 crore in 2032.
In 2011, the annual urban investments were about Rs32,500 crore, leading to an investment gap of nearly Rs65,000 crore. Meanwhile, the urban development ministry's proposed VCF policy has received mixed responses from people.
"It would be better to pay for improved infrastructure than remain indifferent. We need to take some responsibility for infra development and the amount we pay would lead to further growth," a resident of Indirapuram in Ghaziabad district of Uttar Pradesh said.
Another resident of the area said, "We already pay so many taxes to the government apart from the income tax. It is the government's responsibility to provide facilities to the people. The burden of the same should not fall on us," he said.