Witnessing the need for a different tax regime

[rettin]

With fixed supply and ever increasing demand, the rising trend in land value is the logical consequence of the wild fluctuations in the property market. When considering the trends in real estate Ernakulam district always followed a different trend. Appreciation in land values in the key areas of the district is, to a certain extent, the result of the better infrastructure such as roads and sewers being provided by the local bodies.

If the rule is that land should be serviced to the highest standards possible, and this includes not only improvements in and around individual plots, with adequate contributions given to local governments for subsequent larger-scale infrastructure investments, it would be inevitable for urban land to continue to increase in value in the long run.

However, the owners and/or purchasers of formerly agricultural lands and private property developers will have to fully bear the cost of development. If this principle had been in operation in earlier times, the beneficiaries of land will have to bear the full social costs or the externalities of conversion of land from one purpose to the other.

Therefore, a different type of ‘tax’ – planning gain – may be imposed in Ernakulam in order to cover the social costs of development. In the developing countries betterment levies are advocated for financial reasons, as well as for reasons of economic efficiency and equity. One crucial problem in these countries would be to finance utilities and infrastructure, and to control the distribution of benefits from infrastructure.

Finance is tight during times of recession in the economy, and higher income groups are adept at making more use of the available infrastructure and environmental amenities to cut down certain costs, than those people living in the slums. It is argued that levies on amenities are progressive (i.e. they have their larger incidence among the well off) and they are necessary. In most urban-fringes, farmers contribute very little to the revenue of the local governments, both from property tax on their agricultural lands and their incomes from agricultural production, despite the fact that many of them are actually rich landholders.