The Planning Commission' steering group has suggested that the new tax should be based on "ready-reckoner capital value" and could be charged at 0.5% of the total value. In its draft proposal, the group suggested imposing the new tax on vacant government land too.
"It has come to notice that many developers use vacant land for speculative purposes. They buy land and keep it vacant waiting for real estate prices to escalate," an official of the urban development ministry said when asked about the steering group' proposal.
The official said the funds raised through this tax would help municipal authorities fund infrastructure projects and ensure affordable housing and better sanitation and drinking water facilities in cities and towns.
States like Andhra Pradesh and Tamil Nadu have taken the lead and are collecting such taxes in its cities. Other states like Punjab and Bihar are thinking of imposing a similar tax to curb hoarding and check spiraling property prices. Similar taxes are common in developing countries. "These measures have checked soaring real estate prices and an acute housing shortage," an official said.
The plan panel group has suggested a slew of measures to financially empower urban local bodies, including changes in the 74th Constitutional (Amendment) Act.
It has also sought much-needed reforms in property taxes. It wants that property tax should be restructured as a general benefit tax and components like water and sewerage services should be charged as separate user charges.
For constructed properties, the group said the tax should be determined using an area-based capital valuation system which factors in location, type of construction and type of use to determine the slab rate per square foot. The panel also wants local bodies to be allowed to fix the tax rate, subject to a ceiling specified by law.
The group suggested that large unutilized land blocks belonging to central, state and local governments could also be monetized to raise resources. Some of these land assets are located in prime areas and are contributing to urban sprawl, it said. It argued that service charges should be levied on properties owned by central and state governments.