TN: SFC asks state govt to continue devolving 10% of state taxes to local bodies

CHENNAI, Tamil Nadu: The sixth State Finance Commission (SFC) headed by Mohan Pyare, a retired bureaucrat, has recommended to the Government of Tamil Nadu that they should continue devolving 10 per cent of the state’s tax revenue to urban local bodies (ULBs). Out of the total devolution amount, 49 per cent should be allocated to rural local bodies, and 51 per cent should be allocated to ULBs.

The Commission also recommended ₹1,573 crore per annum as special grants increasing by ₹146.8 crore per annum during the award period, in addition to a special grant fund at the state level, under the name Capital Grant Fund. The fund should be created with an initial capital of ₹861 crore in the first year and a fixed annual increase of ₹86 crore per annum over last year’s allocation. Similarly, the Operations Maintenance and Deficit Grant fund should have an annual allocation of ₹712 crore with an annual increase of ₹60.8 per cent over the previously allocated amount.

The commission report has also highlighted the issue of necessary amendments in Article 285 of the Indian Constitution, which will make buildings that belong to the central government liable for property tax. In the meantime, the Ministry of Urban Development should be pressed to introduce statutory provisions to enable the levy of service charges to replace current executive instructions, which were ineffective as per the commission report.

The public-private partnership (PPP) in the urban sector remains unexplored. Tamil Nadu Infrastructure Development Board (TNIDB) should undertake a special drive to identify revenue-generating assets and new shelves of potential assets.

As per the recommendation of the commission, concerted efforts are needed to provide an essential boost to various schemes of the state government, local funds and special grants to create infrastructure projects under the PPP model during the five-year award period of the commission.

The government has been asked to bear the expense of high-cost infrastructure projects only if the PPP model is found to be uneconomic for implementation. That too, after exploring the operation and maintenance (O&M) model under PPP.

A new category of ULB named “Metropolitan City” should be created for grants keeping in mind the special nature of Greater Chennai Corporation. The total devolution of grants for ULBs should be divided into two categories and 16 per cent of these grants should be allocated to Chennai Metropolitan City.

Among the key reforms recommended for the ULBs, one talks about quinquennial revision of property tax, accounting for the cumulative change in the Consumer Price Index (CPI) in last five years. If the ULBs failed to revise the property tax rate, then it should be revised by adjusting the minimum cumulative change of the last five years automatically. For this, relevant provisions of the District Municipalities Act 1920, should be amended.

Apart from that, water consumption charges should be revised by 100 per cent, and the minimum charge should be ₹100 per month.