Property Tax Reforms and Municipal Bonds to Ease BMC's Financial Strain
The 16th Finance Commission, in its report tabled on Sunday, has emphasized the urgent need to augment property tax collection in urban local bodies across India. This recommendation comes alongside the Union Budget presented by Finance Minister Nirmala Sitharaman, which outlines a comprehensive set of fiscal and institutional reforms aimed at strengthening municipal corporations by improving their own source revenues, expanding access to capital markets, and enforcing greater financial transparency.
Strengthening Property Tax Collection Through Digital Initiatives
Property tax remains one of the major sources of revenue for the Brihanmumbai Municipal Corporation, with Mumbai boasting the highest property tax rates in the country. In the previous fiscal year ending March 31, 2025, BMC collected Rs 6,172 crore, achieving nearly 99.54 per cent of its estimated property tax target of Rs 6,200 crore for the 2024-25 financial year.
The Finance Commission has proposed several innovative guidelines to enhance property tax collection efficiency. Key recommendations include the adoption of a Geographic Information System-based digital property tax register, which will be linked with GIS-based master plans of cities. This integration ensures automatic updates to the property tax register whenever master plans are revised, thereby reflecting accurate current land use and enabling upward revision of property taxes.
Furthermore, the report mandates periodic enumeration and regular updating of property tax in alignment with increases in guidance value as per state acts and rules. The commission also advocates for an online common property database that can be appropriately linked with other databases such as water, sewerage, electricity, trade licenses, and building permissions. This linkage facilitates automatic verification of property attributes and assessment records, streamlining the entire taxation process.
Civic officials have confirmed that BMC has already initiated the process of GIS tagging of properties in Mumbai. "Besides carrying out GIS tagging of properties, we are also developing a 3D mapping feature of all existing properties and structures assessed by BMC. Under this project, a 360-degree 3D module of properties will be created and stored in our databases. If property owners make any changes, it will be easily detected, allowing for proper assessment," an official from BMC's property tax department stated.
Municipal Bonds to Fund Critical Infrastructure Projects
In her budget speech, Finance Minister Nirmala Sitharaman proposed a rebate of Rs 100 crore for municipal corporations aiming to issue municipal bonds above Rs 1,000 crore to generate revenue. Municipal bonds are debt securities issued by municipal corporations or urban local bodies to raise capital for funding key public infrastructure projects.
Currently, BMC has undertaken infrastructure projects with a total capital size of Rs 1.5 lakh crore, nearly double the corporation's current reserve corpus of Rs 81,774 crore. "Out of the Rs 81,000 crore reserve that we have, only 49 per cent or Rs 39,500 crore could be used for infrastructure projects, while the overall size of these projects is nearly four times this usable amount. This clearly indicates that in the next few years, there is going to be a liquidity crisis in BMC," a civic official explained on condition of anonymity.
To address this funding gap, BMC is actively working towards raising capital from the market by issuing municipal bonds. "The Union ministry's announcement to incentivise municipal bonds comes at a time when we are already working towards fulfilling the credit rating criteria. Once this process is completed, we can move ahead in terms of listing bonds in exchange for a fixed interest," another official noted.
Initially, BMC is eyeing to float bonds up to Rs 12,000 crore to fund key infrastructure projects, including sewage treatment plants and water conveyance tunnel projects. Additionally, the corporation may issue toll-based bonds for the upcoming Mumbai Coastal Road project, aiming to repay interest rates by collecting toll taxes from the high-speed corridor. While BMC explored the possibility of raising municipal bonds in 2021 for high-cost projects, the process did not materialize at that time.
Push Towards Greater Financial Transparency
The Finance Commission has laid down a crucial set of conditions for the release of funds to urban local bodies. One key parameter includes making audited financial records of local bodies available in the public domain. Moreover, the report stipulates that all ULBs must achieve an annual increase in own source revenue of at least 5 per cent to qualify for these grants.
These measures collectively aim to bolster the financial health of municipal corporations like BMC, ensuring they have the necessary resources to undertake vital urban development projects while maintaining transparency and accountability in their operations.
