States, municipalities — who should levy professional tax? Modi, CMs to discuss in NITI Aayog meet

States, municipalities — who should levy professional tax? Modi, CMs to discuss in NITI Aayog meet

Discussion will take place at NITI Aayog's governing council meeting. The tax is at present levied by 21 state govts, with urban local bodies in only a few places authorised to impose & collect it.

File photo of PM Narendra Modi | Photo: Praveen Jain | ThePrint

File photo of PM Narendra Modi | Photo: Praveen Jain | ThePrint

New Delhi: Should urban local bodies levy and collect professional tax instead of states and use it to improve city infrastructure and services?

That is one of the key urban governance issues which Prime Minister Narendra Modi is expected to discuss with state chief ministers, at a governing council meeting organised by federal think tank NITI Aayog Sunday, ThePrint has learnt. As chairman of NITI Aayog, Modi will head the meeting.

Under Article 276 of the Constitution, professional tax is levied by state governments or municipalities in respect of profession, trade, calling and employment. Levied on whoever is earning an income from salary or is a practicing professional like a doctor or a lawyer, the tax amount has been fixed at Rs 2500 per taxpayer per year.

The tax is at present levied by 21 state governments, with ULBs in only a handful of states — such as Kerala, Tamil Nadu and Gujarat — being authorised to impose and collect it.

“The PM is of the view that if the power to levy and collect professional tax is given to ULBs, it can improve their (ULBs’) revenue stream. They can use the revenue to improve the city infrastructure,” a senior central government official said.

Senior government officials told ThePrint that in a conference of all state chief secretaries in Dharamshala in June, the PM had spoken about how the authority to levy and collect professional tax can be given to ULBs, to improve their revenues.

The official quoted above said that the PM takes a keen interest in urban governance-related issues and has himself come up with many innovative ideas to improve the sector.

Among the other action points firmed up under urban governance and which the NITI Aayog governing council will take up for discussion Sunday, are the ranking of cities on the basis of financial management, and holding of city and ward beautification contests.

The council, which is the apex body of NITI Aayog, will also discuss issues related to agriculture and education. This will include crop diversification and achieving self-sufficiency in oilseeds and pulses and other agricultural commodities, and the implementation of the National Education Policy.

The council, which is expected to meet every year has as its members CMs of states, lieutenant governors of Union territories, and union ministers.

The agenda for Sunday’s governing council’s meeting was firmed up by the Prime Minister’s Office and has been shared with the states and union territories.

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 Financial management of urban local bodies

The governing council, sources said, will also brainstorm on the financial management of cities.

Referring to the agenda, a second central government official said, “It follows from the PM’s address at the national conference of chief secretaries held in Dharamsala in June, where he stressed on the need to improve municipal finances and make ULBs self-reliant”.

With low transfer from states and poor revenue collection — be it from property tax or user charges — the fiscal health of many ULBs in India continues to be precarious.

A 2020 study carried out by the Indian Council for Research on International Economic Relations, based on data procured from 37 of the 53 municipal corporations with a population of over one million then, showed that the share of total municipal revenue in the GDP has declined from 0.49 per cent in 2012-13 to 0.45 per cent in 2017-18 (the latest period for which municipalities provided the data).

Dwindling municipal finances have a direct bearing on the quality of services provided by municipalities. It finds reflection in poor service delivery, be it providing water or cleaning the streets, or lifting garbage.

The governing council will also discuss ways to make some large ULBs become ‘Atma Nirbhar’ or self-reliant.

“Besides, the council will also discuss citizen-centric governance, using technology and data-enabled platforms for ease of living in cities, among others,” the second official said.

(Edited by Poulomi Banerjee)

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