Finance minister T M Thomas Isaac's attempts to squeeze out more from stamp duty on land during 2019-20 had failed big time.
He had expected Rs 4,487 crore but would end up collecting, by Isaac's own admission, only Rs 3,915 crore. The collection is expected to fall even lower. The growth in stamp duty collection has also fallen, from 6.9 per cent in 2018-19 to 5.9 per cent in the current fiscal.
Yet, as though he was half-hearted in his push to get more from land last time, Isaac has come up with full-throated drastic measures to raid money from land holdings.
Most radical would be the Joseph Stiglitz-inspired move to place private land near big projects in a sort of wealthy slab. Stiglitz, the Nobel winning economist, had argued that higher wealth reflected rising land prices. Taking a cue from Stiglitz's thought, Isaac said: “Implementation of large-scale projects will raise the market value of surrounding land.”
Therefore, notified land near such large-scale projects will be valued at a maximum of 30 per cent above the declared fair value. He expects Rs 50 crore from this. This would mean that the value of even plots lying along the hill and coastal highways will appreciate considerably.
Like in his last budget, Isaac has once again increased the fair value of land by 10 per cent. Last time he had expected Rs 400 crore. This will further narrow the difference between the fair value and the market value of land. This time he is more realistic about what it could generate additionally: Rs 200 crore.
This time an ambitious Isaac has set his eyes not just on the land but on the buildings on it. There is no clear guidelines for valuing buildings other than flats, for the purpose of stamp duty. Isaac said this caused massive tax evasion.
It was tax suppression he meant. Land has at least a fair value branded on it but the buildings that stand on it have no particular value attached to them. Its value is a whimsical value declared by the seller and buyer. A structure that could be worth Rs 50 lakh would be declared as having a worth of only Rs 5 lakh. In the case of flats, an approved engineer provides a valuation certificate.
So Isaac now intends to introduce Cenral Public Works Department rates for buildings. He expects Rs 225 crore from this new valuation technique. Real estate transactions have been hit ever since demonetisation. Now with fair value increased for a second time in a row, and the introduction of a Stiglitz-inspired wealth tax for land that rubs shoulders with big projects and a new valuation scheme for buildings, land transactions are near certain to turn costlier like never before.
Annual luxury building tax levied on residential building, which was revised last time too, has been revised once more. For buildings between 3000-5000 sqft, it would be Rs 5,000; now it is Rs 4,000. For 5001-7500 sqft, it would be Rs 7,500; now it is Rs 6,000. For 7501-10000 sqft, it would be Rs 10,000; now it is Rs 8000. Buildings above 10000 sqft will have to pay an annual luxury tax of Rs 12500; now it is Rs 10,000.
As if to soften the blow, Isaac said a 20 per cent rebate would be allowed for those who pay luxury tax in advance for 5 years or above. Additional revenue of Rs 16 crore is expected from this.
