1 Some Contentious Issues

Octroi was originally a duty levied on imports collected at port towns. It was immediately extended to other towns and cities once its productivity as a source of revenue for local governments was recognised (Rao 1986). Octroi, as a source of revenue, has a very long history both in India and other countries. It existed since Roman times in Europe. Octroi was levied in France in the prerevolutionary phase and Paris was surrounded by the “legendary customs walls” which was one of the catalysts for the French revolution (Schama 1989). Octroi was farmed out to private individuals or associations and was highly abused during this time. In case of India, one finds many references to this levy in the Arthasastra.

Although octroi is the most productive source of revenue for local bodies it is also the most discredited one. Some of the charges often labelled against this tax are articulated here. First, octroi is considered to have a distortionary impact on the economy. A major part of octroi falls on inputs and capital goods, and probably generates a chain of cascading effects (Shyam Nath and Sen 1989). Second, some studies indicate the tax to be highly regressive. The final incidence of the tax can be traced in the high prices of essential items consumed by the low-income groups. In this context, an early study by Bahl (1975) observes that in Ahmedabad and Bombay the system of octroi was regressive and probably more so in comparison to state sales tax. Again, the octroi system affects rural and marginal producers adversely. In a very highly competitive market, where forward shifting is not feasible traders tend to shift it backwards to labour and capital. Thus, it has implications for exploitation of rural producers. As Shyam Nath and Sen observe,

…the local bodies which collect a lot of revenue through octroi are

typically ones which function as local markets for the small urban pro

ducers within the municipal bounds as well as rural producers from

the contiguous areas. While the former are not liable to octroi, the

latter are generally unable to shift the tax due to weak bargaining

power. This results in supply of public goods in the urban local area at

the cost of the rural populace (1989: 473).

Thus, octroi directly promotes concentration of trade and industry in large urban centres. It provides a disincentive for sound policy of industrial location beyond municipal limits. Interestingly, if a metropolitan area extends beyond the taxing jurisdiction it dissuades even intra-metropolitan trade. As Bahl and Linn (1992) mention,

…the tax (octroi) can provide a cogent disincentive for metropolitan integration under an areawide authority, because consolidation of fragmented local authorities would automatically reduce the octroi

Economic & Political Weekly

EPW

tax base by detaxing intrametropolitan commodity flows. From the standpoint of efficiency, the octroi is therefore an unmitigated disaster (p 227).

Another important loophole in the system often highlighted by the trading community is related to its administration. Octroi being a check post levy has wasteful effects and thus is beset with huge deadweight loss as it imposes a barrier on the free flow of goods. The detection of vehicles and their physical verification costs the system in terms of fuel and time loss. Some estimates suggest such costs to be of a very high order (NCAER 1979). Apart from these losses the system is a breeding ground for all kinds of malpractices. The collusion between the tax payers and collection officials leads to huge losses in revenue. Due to all these problems it has been labelled as an “obnoxious, vexatious and wasteful” tax.

The contentious nature of this source of revenue is reflected in the fact that it has been discontinued and revived several times historically. It was abolished in France during the French revolution but was reintroduced in Paris in 1798 to meet the financial needs of the municipalities. Other cities in France followed suit and octroi was reinstated. A similar trend is visible in other places across the world. In India, the levy introduced in the Mughal era was abolished at the end of the 18th century, but was reintroduced again. It had a very irregular course throughout the 19th century. The East India Company introduced this tax in 1805. As it became a fertile ground for corruption and other malpractices, it was severely condemned and withdrawn from the presidencies of Bombay, Bengal and other places. However, most of the provinces reverted to the levy of this tax since 1860 under the pretext of resource crunch. The local and central government negotiations continued incessantly for the discontinuation and reintroduction of this levy. Hugh Tinker’s comment, cited in Rao, on this aspect captures the prevailing situation:

The history of octroi in the 19th century is of a recurring contest between the Government of India and the provincial governments, the former constantly pressing for its abolition, and the latter steadily extending its operations. If a student were to calculate the extent of the correspondence covering the subject in the thick leather volumes of the old India office records, devoted to the proceedings of the Government of India, Home Department (Municipalities) he would probably find that at least half of the volumes of letters, orders, resolutions and despatches are taken by this one subject-Octroi (Rao 1986: 160).

The abolition of octroi gathered momentum in the 20th century. Such moves are visible across the world during this period. In Europe it existed in the post-second world war era only in France, Italy, Spain, Portugal and Austria with a radical reduction in the total area of its operation. In France, it was suppressed from January 1949 (GoM 1987). In other European countries it persisted in a limited manner and the last octroi outpost in Belgium was removed in 1970 (Rao 1986). In Iran a local tax similar to octroi, “gate tax”, was abolished in 1962 (Marshall 1969). In case of Bangladesh, it existed till 1981 (Bahl and Linn 1992).

The levy of octroi does not find mention in the central list of the Constitution of India. It comes under the state list. Entry 52 provides for taxes on entry of goods into a local area for consumption, use or sale therein (List II and Schedule VII). Octroi

SPECIAL ARTICLE

was levied in almost all states in the 1950s in India. Different states have discontinued this levy at different periods of time. Kerala and Tamil Nadu are the first states to abolish this levy in their jurisdiction prior to the reorganisation of states in 1956. In 1965, it was removed in Andhra Pradesh. The subsequent period witnessed withdrawal of this levy in other Indian states.

2 Fiscal Significance of Octroi

Prior to an understanding of the relative significance of octroi in Greater Mumbai, an interstate analysis of its importance in the general fiscal scenario of the ULBs is attempted. This analysis clearly reveals the differential fiscal standing of the octroi levying and non-levying states.

Information on the per capita own tax revenue for 15 major Indian states along with their ranks for 1998-99 and 2002-03 is provided in Table 1. Octroi was being levied in three states in 2002-03, viz, Punjab and only in municipal corporations of Maharashtra and Gujarat. It reveals that Punjab enjoys a very special position with the highest per capita own source of revenue and own tax revenue, which is around three times that of national average. It is worthwhile to notice here that in 1998-99, Gujarat was the topmost state as per these parameters and Maharashtra was in third position subsequent to Gujarat and Punjab. Octroi was abolished in Haryana, Orissa, and in the municipal councils of Maharashtra and Gujarat between these two-time points and the fiscal positions of these states have been adversely affected after the abolition of octroi.

MCGM offers a special case for the study of octroi. It garners the maximum revenue from this commodity tax being the commercial capital of the country. In Greater Mumbai “town duty” was levied from 1911 till 1965 which imposed duties on articles brought into the precincts of the city irrespective of the fact whether they are to be used, consumed or sold within the city limits. In 1964, with the amendment to the Mumbai Municipal Corporation Act, 1888, octroi was introduced and became effective from 1 April 1965. The system of assessment was “specific”, that is as per unit of computerisation of operations at all work centres by the installation of Brihanmumbai Octroi Software System (BOSS) at the check posts; and simplification of the procedures of payment of octroi, exemptions and refunds. The octroi rates in Mumbai vary from 0.1% to 7%. The highest tax rate (7%) is applicable to commodities which include food items, beverages, liquor, cigarettes, wood, marble, granite, etc. The lowest rate (0.1%) is imposed on bullion, gold and articles thereof.

The octroi barriers in

Figure 1: Barrier-wise Accrual of Octroi Revenue Mumbai are situated at -MCGM (Average for the period 2002-03 to 2006-07) Sea 4% Air 7%

road, sea, air and rail-

3%Head office 1%Road 60%

Oil pipeline 25%

oils imported through pipe lines. There are in total 62 collection points, at present, which include five road barriers,6 seven sea docks and two railway collection points. Approximately, 6,000 vehicles carrying consignments liable for octroi enter the city every day (MCGM 2007). The average share of these barrier-wise proceeds for the five-year period (2002-03 to 2006-07) is presented in Figure 1. It can be deciphered that the maximum collection (around 60%) accrues from the road barriers. The second important contribution comes from the levies on crude oil. Its share in total octroi revenue is around 25%. Around 5% to 7% each is collected from goods imported via sea and air. Only 3% is collected from railway barriers. There has been a steady increase in revenue collections from mineral oil imports. This could partially be due to the increase in prices of the petroleum products.

An analysis of the top 10 commodities which yield the major contribution to octroi can be useful (Table 2, p 89). The relevant data is for two different time periods – 1986-87 and 2006-07. The

ment of urban development and public health in 1982. And, all the commodities are being assessed on ad valorem basis since the year 1989 (MCGM 2003). A major change in the commodity classification system was brought about in May 2007 to get rid of the ambiguity in the classification, especially, those with multiple uses, by way of adopting the Harmonised Commodity Descrip-

Gujarat

Punjab

Maharashtra

Karnataka

Madhya Pradesh

Haryana

Tamil Nadu

Kerala

Orissa

Andhra Pradesh 552.34 1 390.85 2

some clarity. First, crude oil continues to be the top-most contributor of octroi revenue in both the years. Its relative share, in fact, has increased over time. Second, many raw materials figured as the major contributors earlier, viz, machinery and spare parts, iron and steel, instruments, non-ferrous metals and cotton, etc. In contrast, final goods constitute the major contributors of the

june 20, 2009 vol xliv no 25

as finished products are subject to the same octroi rate. Third, computers and peripherals, motor vehicles, plastic items and items involving hazardous waste are now the major imported items in terms of their octroi value. Items like paper and cotton no more figure in the top 10 imported commodities now.

Table 2: Octroi Revenue from Top 10 Commodities: MCGM (1986-87 and December 2007)

*Such information could be availed only for December 2007 and is not available for a financial year. However, this pattern is similar to the whole financial year and thus, is comparable with the 1986-87 data. Source: Information for the year 1986-87 and December 2007 is availed from GoM (1987) and the Department of Assessment and Collection, MCGM, respectively.

To comprehend the fiscal significance of the tax in Greater Mumbai it would be useful to see its contribution in absolute terms (revenue generated by octroi and its growth rate over the years), its relative significance (trend of its share in the total revenue of the corporation and its performance vis-à-vis other taxes), and its buoyancy. Table 3 presents the gross octroi receipts of 22 municipal corporations in the state for 2004-05. It reveals the highly disparate position of these corporations in terms of the revenue that they get

Table 3: Gross Octroi Receipts (2004-05)

from this source. Octroi

Municipal Corporations of Maharashtra

revenue was less than No of Municipal Corporations Octroi Receipts (Rs in Crore)

10 Up to 50

Rs 100 crore for 16 muni

6 50 to 100

cipal corporations in that

5 100 to 350

year and MCGM received

1 (MCGM) Above 350

around Rs 2,450 crore.

All 4,395

The contribution of

Source: GoM (2006).

octroi is the highest in case of Greater Mumbai

Table 4: Octroi of MCGM: Net Proceeds and Growth Rate

among all local bodies.

Year Revenue* Period Growth The growth of revenue (Rs in Crore) Rate**

from octroi has also been 1965-66 7.4 1971-72 to 1980-81 7.7

phenomenal in case of 1971-72 20.9 1981-82 to 1990-91 8.8 Greater Mumbai. From

1981-82 85.7 1991-92 to 2000-01 4.8

1991-92 470.4 2001-02 to 2007-08 11.4

Rs 7 crore in 1965-66 it

1995-96 880.2 1971-72 to 2007-08 6.8

has gone up to around

2001-02 1561.1

Rs 4,200 crore in

2002-03 2003.8

2007-08 (Table 4).

2003-04 2170.9

The annual (trend)

2004-05 2450.1

growth rate during this

2005-06 2803.2 period is around 15%. 2006-07 3485.2

The growth rate of octroi 2007-08 4184.3

in constant prices for the *Net of refunds; **Annual trend growth rate of octroi in constant prices.

period 1971-72 to 2007-08 Source: Department of Assessment and Collection, MCGM.

Economic & Political Weekly june 20, 2009 vol xliv no 25

EPW

is around 7% per annum.7 The non-local taxes, especially, the supplements to sales tax, are considered to be problematic as overlapping taxes levied by various levels of governments lead to tax competition and thus such taxes would impinge on the already narrow base of tax available for higher levels of governments. The pace of growth has been slower during 1991-92 to 2000-01. It has been the maximum in the post-2000 phase. This could be attributed to high increases in octroi rates and largescale revamping of the octroi system.

Several factors contribute to the growth of octroi revenue. These could be an increase in the volume of imports coming to the city, increase in prices of commodities, increase in other commodity taxes like customs duty,8 and/or increase in the octroi rates. It is difficult to decipher the specific influence of these independent factors. Figure 2 presents the annual growth rate of octroi in constant prices for the period 1972-73 to 2007-08.

Figure 2: Growth Rate of Octroi (Real) of MCGM (1972-73 to 2007-08)

60

50

40

30

20

10

0

-10 1972-73 1977-78 1982-83 1987-88 1992-93 1997-98 2002-03 2007-08

A visual investigation of Figure 2 suggests that huge annual jumps in the octroi revenue generally correspond to the years (1976, 1982, 1983, 1989, 1993, 1998, 2000 and 2002) in which revisions in the octroi rates have been effected.9

The relative contribution of octroi in the overall fiscal framework of MCGM is appreciable. As stated earlier, octroi serves around 50% of the total revenue requirement of MCGM (Table 5, p 90). Figure 3 (p 90) presents a comparative picture of the revenue income of the corporation and the proceeds from octroi for the period 1993-94 to 2006-07.10 The growth rate of the revenue income of the corporation is equivalent to the growth rate of octroi. The annual trend growth rate of the revenue income and the revenue from octroi in constant prices has been 6.5% and 6.3%, respectively during the period 1991-92 to 2006-07.

Table 5 makes it explicit that the contribution of octroi is far ahead of the contribution of property tax, the other important source of revenue for the MCGM. The property tax mentioned here includes, apart from general tax, a host of other taxes which are levied on the rental value base of the properties in the jurisdiction excluding only the government taxes. It is worthwhile to mention here that as per the latest figure, which is for the year 2005-06, the revenue of octroi is almost twice that of property tax. However, it is worth noticing that the gap between the revenue of these two taxes has gone down over the years. In 1991-92, contribution of octroi was three times that of property tax. The rate of growth of property tax has been higher than the octroi during the reference period. However, the growth rate of property tax needs further investigation to find if there is an inherent buoyancy of the system. Piggybacking of a number of taxes, hike

89

SPECIAL ARTICLE

Figure 3: Revenue Income and Proceeds from the Octroi, MCGM

(1993-94 to 2006-07, Rs in crore)

7000

6000

5000

4000

3000

2000

1000

0 1993-94 1995-96 1997-98 1999-2000 2001-02 2003-04 2005-06

in tax rates, and to some extent, new constructions contribute to this increase in revenue. The revenue significance of the octroi of MCGM vis-a-vis some state-level taxes can be deciphered from the Figure 4. The revenue from the octroi accruing to only MCGM is equivalent to the state excise revenue and exceeds the central sales tax accruing to the state. It is almost around one-fifth of the state sales tax.

Octroi has also been an elastic source of revenue. The buoyancy of the revenue accruing from octroi for the period 1993-94 to 2005-06, estimated as the responsiveness of the revenue from octroi to changes in net district domestic product11 (NDDP) of Greater Mumbai, has been 1.34 (estimated for the series in constant prices). Figure 5 (p 91) shows that the octroi revenue as a percentage of NDDP has gone up from 2.6 in 1993-94 to 3.7 percentage in 2005-06. It fell during the 1990s and has shown an increasing trend in post-1997-98 phase. This coincides with

Table 5: Revenue Income, Property Tax and Octroi of MCGM: Growth Rate and Relative Share (1991-92 to 2006-07)

Revenue income Octroi

Year	Revenue Incomea	Property Taxb	Octroic	Property Tax	Octroi’s
	(Rs in Crore)	(Rs in Crore)	(Rs in Crore)	Share in	Share in
				Revenue	Revenue
				(%)	Income (%)
1991-92	990.38	156.16	470.35	15.77	47.49
1992-93	1,066.09	175.33	516.73	16.45	48.47
1993-94	1,416.34	274.97	660.33	19.41	46.62
1994-95	1,621.45	327.73	779.05	20.21	48.05
1995-96	1,820.38	374.61	880.15	20.58	48.35
1996-97	2,217.88	459.24	941.34	20.71	42.44
1997-98	2,420.16	537.94	980.32	22.23	40.51
1998-99	2,770.97	642.61	1,163.58	23.19	41.99
1999-2000	3,034.25	698.03	1,336.93	23.01	44.06
2000-01	3,837.45	852.89	1,619.36	22.23	42.20
2001-02	4,033.15	947.58	1,561.08	23.49	38.71
2002-03	4,600.22	1,127.30	2,003.76	24.51	43.56
2003-04	4,898.85	1,169.24	2,170.85	23.87	44.31
2004-05	5,520.01	1,282.98	2,450.09	23.28	44.45
2005-06	5,947.37e	1,399.07	2,803.22	23.52	47.13
2006-07	6,831.75e	–	3,485.15	–	51.01

Growth Rated 12.8 15.6 12.6 – –

(6.5) (9.1) (6.3) – –

a: Revenue income is exclusive of budget of BEST and less of inter-budget contributions.

b: property tax refers to property tax exclusive of government taxes. c: Net collection exclusive of refund. d: Annual trend growth rate for the period 1991-92 to 2006-07 (for property tax the period is up to 2005-06). e: Revenue income for 2005-06 is revised estimates and that for 2006-07 is budget estimates; Figures in parentheses represent growth rate for the series in constant prices. Sources: (1) MCGM (relevant years), Outline of Civic Finance, for revenue income.

(2) Records of Department of Assessment and Collection, MCGM for Property Tax and Octroi.

increases in the rates of the Figure 4: Octroi of MCGM as a Percentage of Some State-Level Taxes

octroi for almost all com

(Average for 2002-03 to 2006-07, in %) modities at that time. 0 50 100 150 200 250 Thus, the fiscal signifi-

Taxes on profession tradings,

5421 116 101 200

235

cance of octroi is quite ap-callings and employment parent in Greater Mumbai. Not only is the fiscal mag-Taxes on property and

capital transactions

nitude of octroi very high, but it also provides liquid

State Sales Tax/VAT

cash for day to day management of the affairs of the city. More importantly,

Central Sales Tax

the cost of collection of this tax is comparatively low. In

State Excise

2004-05, the cost of collection of octroi in case of Greater Mumbai was only Taxes on vehicles 1.45% of the gross octroi receipts. The cost of collection of property tax has been much higher (8.46%). This is also true for other municipal corporations in the state (GoM 2006).

SPECIAL ARTICLE

afflicts entry tax and it is regressive in nature. As observed by Shyam Nath and Sen,

…entry tax not only discriminates between the local and non-local goods, but also within the non-local goods between the goods of mass consumption and intermediate products on the one hand, and all other goods, on the other. This renders entry tax more discriminatory than octroi, as the discrimination in octroi is limited. This discriminatory treatment may thwart accomplishment of the objectives of uniformity in taxation of mass consumption goods and proper treatment of intermediate products. Further, it may adversely affect the interjurisdictional trade and commerce (1989: 474).

A business property tax has been suggested by some committees and individual researchers. BPT is suggested as an appendix to the general property tax. Shyam Nath and Sen (1989) endorsed the BPT as a viable alternative to octroi in Indian situation. Through a general equilibrium analysis of the incidence of indirect tax, a la Harberger, Shyam Nath and Sen (1989) established that,

while octroi is a tax on the product (equivalent to a tax on capital and labour both), business property tax is a tax on only one factor-capitalin one sector. The incidence of business property tax will be exactly similar in pattern to the corporate income tax; the case that Harberger himself analysed. If we assume that the impact of business property tax is on that sector of business which is relatively more capital-intensive (which is quite reasonable), then the tax burden will rest mostly on capital itself … whereas that of octroi/entry tax is, in all probability, more spread out (p 477).

BPT as an alternative would, perhaps, impose a huge burden on business properties. The property tax system in Greater Mumbai is beset with serious problems at present and the property tax rates are exorbitantly high. The compensation from octroi by business property tax would imply 350% additional property tax rate on non-residential properties as the non-residential rateable value in 2005-06 was Rs 811 crore and the revenue from octroi for that year has been Rs 2,803 crore. It means that a total tax rate of more than 460% and around 670% for properties with and without water meter, respectively, has to be imposed which is exorbitantly high.14 Thus, pending the rationalisation of property tax system, getting more revenue through BPT seems a difficult option.

It would be worthwhile to find how other non-octroi cities of similar magnitude are managing their finances. Such analysis, nonetheless, is circumscribed by the availability of data. The analysis here is confined to the revenue receipts of Delhi, Hyderabad, Chennai and Bangalore. The data is for different time periods for different cities.15 Hence, it is only indicative of a pattern. The extent of external funding (inclusive of grants and assigned revenue) is high in all these cities and varies from 25% in case of Delhi and Bangalore to almost 40% in case of Chennai. Property tax remains the single most important source of revenue. It serves more than 50% of the total revenue receipts in Delhi and its share is more than 40% in Hyderabad and Chennai, and is around 35% in Bangalore. Non-tax revenue serves one-fifth of the total revenue receipts in Hyderabad and Bangalore. Besides, cess (education, health, etc) serves around 10% of the total in Bangalore. Two other sources of revenue,

COMMUNICATIONS ADVISER

APPLICATIONS

Forfull detailsofthe positionsandhowtoapply,pleasegoto: www.thirdsectorpartners.com/dfid

which are either within the purview of the local body or are bodies suffer from non-buoyancy and are highly contentious assigned by the state government, are important contributors in nature. The abolition of octroi poses a special challenge in for local government revenue. These are duty on transfer this context and more so for Greater Mumbai, where octroi of property and profession tax. Duty on transfer of property is the most lucrative source of revenue. An analysis of possible contributes about 10% of the revenue income in case of Delhi alternatives has not been very encouraging. Among the sugand is an important component in the assigned revenue gested alternatives, BPT and entry tax have drawn much attenobtained by Hyderabad and Chennai municipal corporations. tion. BPT is not a viable alternative for MCGM at present, as the Profession tax serves around 10% of the total revenue income property tax system itself is beset with serious problems and in case of Chennai and is a component in the assigned revenue there is already a high tax burden on non-residential properin Hyderabad. ties. Piggybacking of several other taxes on the general prop-

The discussion in this section highlights the problem in erty tax has already exhausted its potential. Given the frozen finding a suitable alternative to the most fecund source of reve-tax base, an inordinate increase in property tax rate would nue, the octroi. The problem is striking in the case of Greater be essential to recoup the necessary revenue. The entry tax is Mumbai, where this tax yields the highest revenue in absolute similar to octroi without a physical barrier to commerce. Howterms. The analysis suggests that no single option can ensure a ever, entry tax is not as productive as octroi but shares many of comparable return without a conspicuous increase in its tax its loopholes. burden. Rationalisation and mobilisation of revenue from exist-To ensure fiscal autonomy, it would be essential for MCGM to ing sources as well as locating other possible revenue options locate sustainable own sources of revenue in place of octroi. become imperative. Property tax is the principal source of revenue in all non-octroi

4 Summing Up

further revenue from this source becomes necessary in the As Indian cities grapple with the growing demand for infra-absence of octroi. Simultaneously, augmenting resources from structure and decent living conditions, the shrinking of financial non-tax options like user fees and exploring other options like resources available at the disposal of city governments is infrastructure cess and profession tax would be important in certainly a matter of concern. The tax instruments of the local ensuring fiscal solvency of the corporation.

Notes 10 Revenue incomes for 2005-06 and 2006-07 are (New Delhi: Planning Commission, Government revised and budget estimates, respectively. of India).

1 There is a sharp divide in the fiscal position of the local bodies in the octroi-levying and non-levying 11 NDDP figures since 1999-2000 are provisional; – (2004): Report of the Twelfth Finance Commission states. A study of select municipal corporations of Source: Government of Maharashtra: District (2005-2010) (New Delhi: Ministry of Finance, the octrio levying states in India showed that it Government of India).

Domestic Product, various years (Mumbai: Direccontributes to about 50% to 90% of the total tax GoM (1987): Report of the Committee (Kasbekar

torate of Economics and Statistics). revenue (NIUA 1998). 12 As on 31 October 2004; Source: MCGM (2005):

Committee) on Substitution of Octroi (Mumbai: 2 This was announced by the finance minister of Government of Maharashtra).

Budget Statement (A, B, and G) for 2005-06, the state during the annual budget speech in

Mumbai.

– (2006): Report of the Study Group (Subodh

2008. 13 In Madhya Pradesh and Karnataka octroi was

Kumar Committee) on Devising an Alternative to

abolished from 1 May 1976 and April 1, 1979,

3 In 2008 and 2007, respectively.

Octroi (Mumbai: Government of Mumbai).

respectively and the entry tax was introduced

4 In 1998-99, the municipal councils raised around

JBC (1994): Report of the Chief Minister’s Committee to

(GoM 1987).

Rs 2.7 crore from octroi. The state compensates

Examine the Issues Relating to Octroi (New Delhi:

14 The current tax rates are as high as 112.5 and

these local bodies for the revenue loss by Jyoti Basu Committee, Ministry of Surface Trans

320.5 for non-residential properties with and

considering some annual growth rate. The state port, Government of India).

without water meter, respectively.

compensation to these bodies now stands at around Rs 5 crore (This information was collected

15 Information for Delhi is for 2000-01 and was ob-MCGM (2003): Octroi Rules: 1965 (Mumbai: Municitained from Expert Committee on Property Tax pal Corporation of Greater Mumbai).

from the Directorate of Municipal Administra

(2003): Property Tax Reforms: Report of the Expert – (2007): Budget Statement: 2007-08 (A, B & G)

tion, Maharashtra). All 22 municipalities in the Committee, Municipal Corporation of Delhi; (Mumbai: Municipal Corporation of Greater state collected around Rs 4,395 crore from octroi Data for Hyderabad is for 2007-08 (Revised Esti-Mumbai).

in 2004-05 and the 15 D category cities collected

mates) and was downloaded from http://www.

around Rs 700 crore (GoM 2006). Table 3 reveals Marshall, A H (1969): Local Government Finance (The

ourmch/budget2008-09.ppt#259,11,slide11; Data

that the octroi receipts of no municipal corpora- Hague: International Union of Local Authorities).

for Chennai is for 2005-06 and was downloaded

tion except MCGM exceeds Rs 350 crore. Fifteen NCAER (1979): Road Transport Industry: A Review

from http://www.chennaicorporation.com/abt_

cities, where octroi is being abolished, earn less (New Delhi: National Council of Applied

revenue_receipt.htm; Data for Bangalore is for

than Rs 100 crore from Octroi. Economic Research).

2008-09 (Budget Estimates) and was accessed 5 The comparison is based on the average figure from http://www.bmponline.org/account-dept/ NIUA (1998): Abolition of Octroi: A Study of its Impact for five years, 2000-01 to 2004-05, as per the

Budget%20Estimates%20for%202008%20-%20 on Municipal Finances and Transport Efficiency information provided in GoM, 2006.

2009.pdf. (New Delhi: Resesarch Series No 68, National 6 It would be six if the check naka at Bal Rajeswar Road Institute of Urban Affairs). is included, which contributes only marginally.

Oommen, M A (2006): “Fiscal Decentralisation to 7 The consumer price index of non-manual employees

the Sub-State Level Governments”, Economic &

References

(CPINM) was used here as the deflator. For 2007-08,

Political Weekly, 41(10), 897-903. the CPINM is the average for nine months. The Bahl, R W (1975): Urban Public Finances in Developing

Rao, N R (1986): Municipal Finance in India (New source for this data has been GoM (2008): Eco-Countries: A Case Study of Metropolitan Ahmeda-

Delhi: Inter-India Publications).

nomic Survey of Maharashtra, 2007-08, Mumbai. bad, Urban and Regional Report 77-4, Develop-

Schama, Simon (1989): Citizens: A Chronicle of the

8 As the ad valorem system assesses the commodi-ment Economics Department (Washington DC: French Revolution (New York: Knopf).

ties as per the value of the product inclusive of World Bank). other taxes. Bahl, R W and J F Linn (1992): Urban Public Finance in Shyam, Nath and Tapas K Sen (1989): “Business Prop-Developing Countries (New York: Oxford Univer-erty Tax as an Alternative to Octroi”, Economic &

9 The octroi rates have been revised on 1 April 1964; 1 April 1969; 1 April 1970; 1 August 1976; 1 June 1982;

sity Press). Political Weekly, 24(9), 473-78. 1 April 1983; 1 June 1989; 2 February 1993; 21 GoI (1983): Task Forces on Housing and Urban Deve-Ulbrich, Holley H (2003): Public Finance in Theory August 1998; 26 April 2000; 1 August 2002. lopment II: Financing of Urban Development and Practice (Ohio: Thomson).

Economic & Political Weekly

EPW

june 20, 2009 vol xliv no 25 93