Most governments, and even people sometimes, forget that they (the people) are the real and only beneficiaries for whom governments collect taxes to provide facilities for their living needs. It is all too easy to proceed on the mistaken notion that governments have some mystical power to tax at will. It is also easy and equally incorrect to imagine that ‘government knows best’, when it comes to such decisions. It is these erroneous presumptions that are at the root of the current controversy on introduction of Capital Value Scheme (CVS) of property taxes for Bangalore. The Karnataka Government’s decision to introduce CVS has come in for criticism from many sections of society. Government functionaries have attempted to justify it. Several important considerations that impinge on the subject seem to have been left out of the debate.

The Scheme was introduced a few years back and is currently practised all over the State, except in Bangalore. Even the erstwhile CMC areas around Bangalore have the Scheme in place. This being so, why this hue and cry now, when the Government, in all its innocence (?), have decided merely to introduce it in Bangalore too? The answer to that question might well be, yet another question: “Why did not the Government introduce the Scheme at Bangalore, when it was applied at all other places?”

It would be useful to commence this exercise with a few quotes on taxation from that excellent book on India under the British, ‘The Case for India’ by Will Durant. Set in context, these quotes show what taxation did to our Nation then. Here are the quotations. “With a government responsible to England (paraphrase it as, ‘to none’, in present day India), not to India (read this as, ‘its people’ for application today), it is natural that the power of taxation should be freely used”. The words in brackets could be easily be substituted to today’s scenario, with little cause for concern, as to its validity!  The next quote: “Though, before the coming of the English, the land was private property, the Government made itself the sole owner of the soil and charged for it a tax or rental now equal to one fifth of the produce.” Is it now difficult to see from where the ‘property tax’ ideas originated?
There is the need to examine some principles of taxation in order to understand what this hullabaloo is about. 

Principles of taxation

The first principle of taxation is ‘Fairness’ or the ‘Equity’ principle. This principle enjoins the consideration of two criteria for decisions on tax and its quantum. One is the ‘ability-to-pay’ and the other is the ‘benefits’ from the tax. These do not need any further explanation. Another principle is ‘adequacy’. Adequate tax systems are those that raise sufficient funds to meet public requests for services. Economists frown at deficit financing, although the father of modern economics, John Maynard Keynes’ theories did help America get through the depression years and recover thereafter.

‘Exportability’ is another useful principle that relieves residents, who enjoy the public service and passes on the tax burden to outsiders who come for short periods. An example, is sales tax on items purchased by tourists.

‘Neutrality’ is another important concept that dictates taxation policy. A neutral tax is one that would not affect the taxpayer’s decision to buy, for example. An impost on e-commerce, where the buyer pays a higher price for the convenience, could be said to be neutral or ‘efficient’. ‘Simplicity’ is an extremely important principle. A tax that is difficult to collect or costs more to collect than the revenue it generates would be useless. A tax that is so difficult to understand and hence, to pay or comply with, (like our Sakrama penalties, where one needed a chartered accountant or architect or both and a tout, is an example of a complicated tax), would be impossible to administer.

Where do these principles find relevance in the current property tax controversy? This is examined next.

The Fairness or Equity Principle:

The two components of the Equity or Fairness principles, ‘ability-to-pay’ and  ‘benefits’, certainly don’t figure in the Government’s scheme of things. Perhaps an examination of the records of the State Assembly proceedings that passed the legislation to switch to the CV Scheme would throw some light on whether this principle was ever considered by our lawmakers. More likely, the bill would have been passed without so much as a murmur of protest. Remember the ‘Sakrama Bill’ that was also passed at a ‘midnight’ session in far away Belgaum, and none of the public or the currently protesting political stalwarts were any wiser? Do the large majority of property owners, whether residential or small shopkeepers, have the ‘ability-to-pay’? What ‘benefits’ would this suffering majority, remembered only just before elections, get from this tax money?

A hidden agenda (?)

It is time to answer the question as to why the Government did not implement this tax scheme at Bangalore for so long and why now a sudden desire to enforce the law? Enter JN-NURM (Jawaharlal Nehru National Urban Renewal Mission) — the villain of the piece. BBMP has projected requirements of Rs 22,000 crore to be spent under the Mission. Of this sum, BBMP’s share would be Rs 11,000 crore. This money should come from the magic wands (or Alladdin’s lamps) of Sakrama and CVS! Who would benefit, and how, from these projects of the Mission? GOK, (an abbreviation, which interestingly stands for both ‘God Only Knows’ & ‘Government Of Karnataka’) is the answer to that question.

JN-NURM is meant to encourage, nay instill, transparency in Government’s functioning and people’s participation in governance. In this context, it is intriguing to note that in the JN-NURM proposals that BBMP submitted to the Central UDD Ministry, the sources of funds are very different from either Sakrama or CVS. They (the proposals) talk of surplus funds with BDA & BMTC! Is this how JN-NURM hopes to induce State Governments to become transparent and encourage people’s participation? Would the Central UDD Minister or the Ministry’s Secretary or the Chairman, TAG of JN-NURM care to elaborate?

This brings up the principle of ‘adequacy’ in taxation. Since, the ‘public’ has not requested for any of the projects under JN-NURM, this principle would not apply here. Even so, when BBMP does not effectively collect a large proportion of taxes due from many properties under the present scheme, the need for hiking this tax, in the name of adequacy or need for additional funds, is an untenable argument. The principle of ‘Neutrality’ too has no application to the decision to impose CVS, as there is no ‘buy’ decision of people involved in this matter. As for ‘simplicity’, the less said about it the better. Both Sakrama and CVS are so complex that they would need research scholars to fathom. The ‘Aam Aadmi’ would be lost in the maze of permutations and combinations of the tax systems that would fox any prodigy in algebra.