Fiscal and distributional implications of property tax reforms in Indian cities

The property tax is an important local revenue source in many countries, but it is often underused as a source for financing local expenditures. In India, many local governments have initiated administrative and valuation reforms to increase the yield from property taxes. In this paper, we examine the fiscal and distributional implication of the ongoing and potential assessment reforms in two Indian cities - Bangalore and Pune. While our findings are specific to these two cases, the reform efforts and underlying problems are epresentative of most urban local governments. Our main finding is that reform efforts that bring assessment of the property tax base closer to market values have significant positive impacts on revenue generation, and do not have adverse consequences in terms of the tax burden faced by the poor. Further, regulations such as rent control significantly impinge on the growth of revenues from the property tax and in fact do not serve the interests of the poor. While current assessment reforms are a good first step towards increasing the performance of the property tax, structural issues such as improved valuation, increasing buoyancy of the tax, and building taxpayer confidence need to be addressed to make these reforms sustainable.