Catering to the Rich?

Arjimand discusses two important Bills that were recently "tabled" in the State Assembly. The one argument he does not explore is that did the government pursue a half-hearted effort to give an appearance of commitment to overhaul Kashmir's feudal economy that mostly caters to the rich?

(Mr. Arjimand Hussain Talib, 34, was born in Srinagar. He is a columnist/writer and a development professional who matriculated from Tyndale Biscoe Memorial School in 1991. He subsequently graduated with a Bachelor's degree in Engineering from Bangalore University and has a diploma in journalism as well. He is an alumni of the International Academy for Leadership, Gummerbach, Germany and has worked with UNESCO, Oxfam and ActionAid International in some seven countries in Asia and Africa. Arjimand writes regular weekly columns for the Greater Kashmir and The Kashmir Times since 2000 on diverse issues of political economy, development, environment and social change and has over 450 published articles to his credit.)

How property tax and agri land laws could be better designed

Some key laws in the state lately seem to be passed with juvenile statecraft. Well, it may sound paradoxical in itself, but that is what comes to mind when we analyse the two controversial bills passed in the Assembly recently.

The bill on introducing property tax lacked in homework. So did the bill which sought to ban any construction on and conversion of our agriculture lands.

Now that the government has backtracked and both the bills were sent to ‘select committees’ – it is a good time to float other ideas as well, which just don't look funny.

The first thing that we need to understand is that both these laws did not come out of nothing. At the moment, the law on property tax is not a matter of choice for us, it is a binding rather. For long I have been saying that the loans we have been borrowing from agencies like the ADB and the World Bank through schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) do not come for free. All these loans come with certain conditions.

When J&K state got ADB loans – which Economic Reconstruction Agency (ERA) now spends on our roads, drains, water projects etc. – we signed the same on certain conditions. The conditions included enhancing and streamlining water tax, introducing new municipal and other civic taxes. But all this is not unique to J&K state – these agencies ‘help’ every country with advice and ‘conditionalities’ about how to raise more resources to repay their loans.

When it comes to the proposed property tax, it does not come out of the blue. It relates mainly to the World Bank funded centrally sponsored JNNURM scheme. The main aim of the scheme – started in 2005 - is to modernise cities like Srinagar and Jammu – whose population fall between 10 and 40 million. So did we see any modernisation happening in Srinagar lately?

In our state, as many as 93 projects costing Rs. 1227.23 crores have been sanctioned under the scheme. Out of this amount 80 per cent of the funds will come as grants from the government of India, while J&K state has to contribute the rest 20 per cent.

Interestingly, majority of the projects under the scheme are implemented in the Jammu region. Until recently, Rs. 126.54 crore were spent in Kashmir region in comparison to 167.19 crore in Jammu. But that is not the whole story.

Given the fact that this is a reform-driven scheme, all the states taking this money are bound to introduce new taxes. A Business Standard report on February 12 quoted Finance Minister Pranab Mukherjee as saying that “he would not give a penny of the JNNURM money to the states if they failed to fulfil their promises on reform.”
Under the scheme, the states have to bring in 23 reforms – which are mandatory and optional. The mandatory reforms include introducing e-governance, municipal accounting, property tax, rationalization of stamp duty, community participation law, public disclosure law, among others.

So when it comes to property tax it is clearly mandatory. But what is interesting to note is that the government didn’t go ahead with e-governance (which was much easier but curbs the powers of babus) with the same urgency that it went with the property tax bill.

So at this point the government seems to have two options – either to say ‘no’ to the JNNURM funds altogether or in fact bring in the mandatory reforms. But the moot question is: is a restructured property tax law really possible in J&K at the moment?

At the heart of property tax idea there lays the assumption of wealth creation. It is extremely debatable whether residential houses in J&K create wealth, if not rented. It is not only about paying property tax on homes, as our economy remains highly volatile, people will find paying property tax on commercial properties impossible.

There are two creative ways of raising more revenue for J&K. Pakistan, despite stiff opposition, has just introduced farm income and wealth taxes, creatively designed not to tax poor people in both rural and urban areas. Landholders of more than 50 acres there need to file tax returns. Under that law, an income of Rs. 80,000 per crop has been exempted from the tax, while five per cent tax is applicable on an income of Rs. 100,000 and 15 per cent on all agricultural incomes exceeding Rs. 200,000. Given the big money J&K makes from large farmlands and livestock, we can surely think on similar lines.

When it comes to wealth tax we could design that creatively too. Any wealth making property (if the owner doesn’t pay income tax) – within and outside municipal limits could be brought under such tax. But would the ministers and babus like such a law?

When it comes to the Prohibition on Conversion of Agricultural Land for Non-Agricultural Purposes Bill, it requires drastic rethinking. What the original bill meant is that people won’t be allowed to switch over to better earning horticulture and make constructions on irrigated agricultural land.

But why on this earth we need a law that prohibits conversion of irrigated land to other purposes? Non-irrigated horticulture makes more money. It saves us water. But when it comes to construction of houses and commercial buildings on farmlands, it does need a prohibitive law.

Our population continues to grow. The 24 per cent population growth between 2001 and 2011 is huge. That means if we take that as an average growth, in the next forty years, Kashmir valley alone will have a population of 1.37 crore. So clearly we would need more houses and more business space.

Section 8 (C) of the original bill empowered “the government or the competent authority to permit any person or any department of the Government or any other body to convert the use of agricultural land for public utility purposes”. Obviously, it is bound to be misused.

A time has come when J&K state needs to bring in a law on Floor Space Ratio or Floor Space Index (FSI). We have done a massive horizontal building expansion. That is a luxury we can’t afford now. An appropriate FSI will make it binding on people to use a particular patch of land to create a particular floor space.

That, in effect, would mean more people living or doing business in a patch of land than as of now.