Revenue Augmentation in Jharkhand

The long term goal of an ULB is to provide quality infrastructure and services to its citizens on a sustainable basis. To meet this challenge, it needs to intervene in the following areas:

• Maximize revenue from own sources;
  
• Effectively manage its financial resources
  
• Provide efficient services through financially sustainable system

To reach the third level and to harness confidence of its citizens to make it financially sustainable, the ULB has to pass the first two hurdles as mentioned above. These hurdles deal with arrangement of finance and its effective management. However, the financial resources of the urban local bodies (ULBs) in Jharkhand were so scarce that ULBs were not able to meet the revenue expenditure from their own sources.

The challenge

The AS-IS situation assessment before implementation of Revenue Augmentation Initiative indicated a system that was heavier on top tier of governance with respect to provision of fund to the ULBs. According to a report on ULB status by National Institute of Public Finance and Policy,

• The dependence on state government or central government grants/ loans was the primary source of survival as most of the perceived ULB revenue sources were in state control.
• The devolution of power was not complete as some financial aspects were still under state control.
• On an average 91 per cent of the revenues in the ULBs of Jharkhand was coming from transfers from either state or national government. The ULBs with population below 25,000 were more dependent on grants (97 per cent).
• Total revenue showed a falling trend across the cities barring the cities with 75-1 Lakh population
• Bigger cities did not perform better in terms of revenue generation, their own revenues are dominated by non-tax revenue
• Gaps between own revenues and expenditures are also recorded and which were true for ULBs of all population size
• The revenues as well as expenditures in the ULBs in Jharkhand are lower than other Indian cities
• The comparison of ULBs of Jharkhand with neighboring West Bengal with similar socio-economic conditions indicated that the state ULBs are performing at least four times lower rate with respect to collection of Property Tax, Non Tax revenue and Own revenue.

The issue

The challenges as indicated above was found to be multi-faceted. The administration concluded that it needs a holistic approach to address the issue and tackle the problem from end to end. The following issues were zeroed

• The ULBs were practically negligible source of income from Non-Tax resources
• Tax income source were weak due to lack of proper management
• ULBs don’t have tax collection source mapped or mapped source are very old.
• Most ULBs in the state were following cash based single Entry Accounting System.
• In lieu of balance sheet preparation, ULBs were mostly maintaining records of Assets & Liabilities in various forms.
• Records were not updated by ULBs on regular basis.

The intervention

These deficiency of the prevailing system had therefore; created the need of creating new avenues for revenue generation along with adoption & implementation of Accrual Based Double Entry Accounting system.

Strengthening revenue sources

A special taskforce was created to research and finalize the newer avenues in which the ULBs can generate further revenues to become self-dependent. The following interventions were implemented for revenue augmentation
— Innovative and new avenues explored

• Project Management Unit (PMU) was appointed to address the professional staff shortage. Professional were appointed under this PMU for 41 ULBs of Jharkhand for revenue augmentation
• Data of Municipal License, water charge and building permissions are used to map with Holding Tax
• Resolve Limited Manpower Problem by Appointing Tax Collection agencies under PPP mode
• Reverse Mapping Mechanism implemented to combat problem of unassessed Households
• Self -assessment system based on trust and verify was introduced
• Amnesty Scheme was introduced whereby arrears were collected without fine
• Old lease agreement of Rent from municipal properties were assessed and efforts are in progress to bring it at par with at least ARV
• Legal amendment and provisions were made
• Trade License regulation 2017 were implemented
• Property Tax Rules were revamped after 90 years.
• Old Provisions of Bihar Orissa Municipal Act 1922 was replaced by Jharkhand Municipal Act 2011
• Property Tax Rules 2013 were notified
• Recovery Rules notified with mechanism to deal with defaulters who have not paid property tax and this ensures equity in collection and enforcement of Governance.
• Legal amendment and provisions in Process
• Advertising regulation, Mobile Tower and OFC Cables Rules, Pilgrimage Tax Rules to be implemented
• Scheme for Advertising on LED Poles Prepared

Implementation of ABDEAS

The Urban Development Department of Government of Jharkhand prepared the Jharkhand Municipal Accounts manual based on the principles and policies suggested by the National Municipal Accounts manual developed by Ministry of Urban Development, Government of India. The following are steps undertaken for implementation of ABDEAS

• State government prepared Jharkhand Municipal Accounting Manual (JMAM) having all the provisions and procedures for accounting of the ULBs.
• In the year 2015, the state has implemented ABDEAS in all ULBs. The work was carried out by the support of Chartered Accountant Firms having National Repute selected via open tender.
• To ensure proper implementation the work of ABDEAS was divided into small clusters having 2-3 ULBs in each cluster.
• Statutory Audit of the ULBs

1. ULBs were divided into 8 clusters for Statutory Audit.
2. Cluster wise CA firms appointed for statutory Audit of ULBs.
3. Statutory Audit are timely completed and uploaded in the website.

• Internal Audit of the ULBs

1. ULBs were divided into five clusters for Internal Audit.
2. Cluster wise CA firms appointed for Internal Audit of ULBs.
3. Dedicated IA team deployed at ULBs.

Resultant effect

• Number of assessed property has increased from 4.37 lakh properties in 2016-17 to 6.22 lakh properties till June 30, 2018. Thus, assessment has increased by 42.3 per cent leading to increase in tax base.
• Property/Holding Tax Collection, one of prime component of own revenue has increased from Rs. 10.35 crore in 2013-14 to Rs. 105.06 crore in 2017-18 , an increment by more than 10 times
• Per capita Property tax revenue per annum has increased from Rs. 99.23 per Household to Rs. 1006 per HH in the same tenure.
• Collection ratio has increased from 48 per cent in 2016-17 to 67.5 per cent in 2017-18, an increment by 41 per cent
• Collection from arrear demand has decreased over the years and collection from current demand is increasing indicating increased willingness among people to pay their taxes

Role model on turnaround

The turnaround by the ULBs of Jharkhand has been encouraging and it is working as the case study for the upcoming ULBs of the state. The upcoming ULBs in the same geographic locations are encouraged to take handholding support from the established ULBs.
The following are the key takeaway from the financial augmentation experimentation done by the state that may be followed as an example:

• Effective devolution of power
• Handholding support to ULBs
• Technological Implement Adoption (web Based ABEDAS & GIS mapping)
• Innovation to tackle stubborn issues (ex. Tax Collection Management through PPP)
• Encouraging proactive citizen participation (self-assessment & Nagar Prahari Scheme on Property Tax).