The most recent Tamil Nadu State Finance Commission has recommended a shift to self-assessment for property taxes to improve “ease of doing business” for taxpayers. Chennai had attempted to introduce a self-assessment system in 2015-16, however it had to be rolled back within a few months because of widespread under-reporting of property values by property owners and confusion about how to perform the assessment. Through conversations with the GCC Revenue Department our research team learned that the municipal corporation of Bangalore (capital city of Karnataka) has had great success with implementing self-assessment for property taxation. We decided to plan a field visit to Bangalore to speak with officials in the municipal corporation and learn about their experience, so we could make recommendations to the GCC.
I arrived in Bangalore on a 6 am flight from Delhi, accompanied by the other research associate working on the property tax project. We had planned a day packed with meetings (allowing travel time to accommodate Bangalore’s notorious traffic!) so we could return the same night.
Through meetings with officials in the Bangalore Corporation and tax assessors, we learned a great deal about some of the “best practices” for self-assessment of property tax. Properties in the Chennai corporation are assessed only once by tax assessors and the property value remains constant unless property owners request a re-assessment after any additional construction. In Bangalore, the initial assessment is done by tax assessors, and in each subsequent year property owners are supposed to complete “self-assessment” form before paying the property tax. They must either declare that the property characteristics have remained unchanged, or must report any changes to the property (e.g. an increase in built-up area, construction of additional floors etc.). If the property has changed, owners must self-report the new property parameters into an online system which calculates the new assessed value and issues a new property tax bill. This system was introduced in 2008 and allows for frequent updating of property values, unlike Chennai’s system where property assessments tend to be static. To ensure that property owners do declare changes to their properties, assessors employed by the Bangalore corporation are supposed to randomly select some properties for audit. While enforcement has not always been very strict, resulting in some under-reporting of property values, the current administration has been very active in ensuring audits are being conducted to improve collections.
We took away a few key lessons from Bangalore’s self-assessment system:
1. An extensive information campaign is essential prior to the launch of the self-assessment system to avoid confusion among taxpayers. The Bangalore corporation published a handbook with extensive examples describing how owners should assess different types of properties. They also created ward offices where revenue officials were available to address taxpayers’ concerns and to fill out the online form for taxpayers who were not comfortable using the internet themselves.
2. Allowing self-assessment for newly constructed properties leaves a lot of room for under-reporting. The first property assessment should be completed by tax assessors who are experienced, to ensure the “baseline” property value is correct. Using a self-assessment system to encourage taxpayers to report changes to their property before paying property tax each year can help to keep assessed values up to date.
3. Finally, making taxpayers aware that random audits will be conducted is essential for discouraging misreporting. Bangalore corporation also imposes a penalty worth 2 times the difference in tax if property owners are caught under-assessing their properties. Chennai’s self-assessment system in 2015-16 did not impose any penalties for misreporting which could explain why these issues were rampant.
The visit to Bangalore was a great learning experience and we were later able to share our insights with the Greater Chennai Corporation. I look forward to seeing how they decide to develop their new self-assessment system!