Karachi Municipal Tax Policy | Political economics



ver the past few weeks, municipal tax collection policy has taken center stage in Karachi. Karachi Metropolitan Corporation (KMC) officials strongly believe that Municipal Utility Charges and Taxes (MUCT) should be collected through an effective collection mechanism to strengthen the finances of KMC. To achieve this goal, the KMC has sought to collect these charges through electricity bills.

Strong opposition to the plan was expressed from various quarters. Many people are of the opinion that the current economic recession does not make it an opportune time to impose new levies. Citizens are already grappling with the problems of power cuts and poor service in the water supply, sanitation and drainage sectors. It is claimed that imposing another financial burden on the common man is quite unjustified. Many political parties, mainly the Jamaat-i-Islami (JI), came into action. Through protests, lobbying and legal petitions, they are trying to stop what they describe as an unfair levy on the unfortunate citizens of Karachi.

The JI argues that local city bodies are under the direct control of the provincial government. He says the provincial government has made no visible effort to start the vital maintenance works the metropolis needs, especially after the crippling monsoon rains. Roads, streets, pathways, water pipes, drainage channels, sewer lines, solid waste management areas, sidewalks, pedestrian bridges, natural drains (nullahs), fires roads, green belts, bridges and other elements of essential civic infrastructure have been completely or partially damaged. Recently, Sindh’s highest court prevented the KMC and the electricity utility from collecting municipal taxes on electricity bills.

Taxes and utility charges are not similar things. Taxation, by definition, is a levy imposed by an administration on citizens, institutions or both depending on the fulfillment of certain conditions. Income tax is levied on those who earn more than the income threshold. Property tax and rates are charged to owners of real estate and motor vehicle tax to users of vehicles in the stipulated categories. Each category clearly defines the inclusion and exclusion of user groups according to their respective characteristics. The basic objection is that the KMC has taxed a set of public goods that should be freely available to all citizens. A healthy environment has long been a trampled right. This argument stems from the fact that the city contributes the largest proportion of direct and indirect taxes to the public treasury. A better living environment and the corresponding infrastructure are therefore considered a right and not a paid privilege.

Karachi accounts for more than a third of the province’s population, one would assume that a proportional amount would be allocated to strengthen its urban infrastructure… Unfortunately, the Provincial Finance Commission, responsible for allocating and distributing funds to the various districts of the province, remained largely dysfunctional.

It should be noted that after the passage of the 18th Amendment in 2010, the provincial share in the National Finance Commission award increased significantly. More than one trillion rupees a year have been transferred to provincial coffers. As Karachi accounts for more than a third of the province’s population, one would assume that a proportionate amount would be allocated to strengthen its urban infrastructure and meet related needs. But no such thing was done. Unfortunately, the Provincial Finance Commission, responsible for allocating and distributing funds to the various districts of the province, remained largely dysfunctional. Karachi is also the prime location for real estate development which generates billions in added value. However, the city ends up collecting a measly Rs 1.6 billion or thereabouts in this tax. It can be noted that the property tax is one of the main taxes imposed on urban and suburban properties to owners who are the direct beneficiaries of capital investments and the general increase in the prices of their properties. Rs 8.5 billion has been collected through motor vehicle tax, despite the city reporting the registration of over 900 cars/four-wheelers and over 1,000 motorbikes every day.

The MUCT is likely to divide the city into “rich” and “poor” neighborhoods. High and middle income localities, commercial areas and posh localities will be the focus of this tax and perhaps the resulting expenditures. Irregular neighborhoods, expanding popular neighborhoods and peri-urban areas will eventually be left to their own fate. Taxpayer pressure will not allow public infrastructure spending to target less privileged localities. New projects will continue to evolve around the old contexts. It is already well known that roads and highways only marginally benefit low-income communities. In addition, jurisdictional disputes must be resolved. Residents of neighborhoods outside of KMC’s control will continue to get services through alternative providers, but residents of municipal boundaries will be burdened with paying taxes.

The coverage of new levies must take into account the nature and scale of users. For example, road user charges need to be reviewed and possibly made commensurate with road development programs that have been undertaken recently. Benefits to motorists should not be blamed on pedestrians or owners. It can be noted that the lion’s share of recent investments has been devoted to roads, highways, air bridges, interchanges and bypasses. In the majority of cases, road widening projects have deprived pedestrians of the fundamental right to adequate sidewalks. There are too few pedestrian crossings. High traffic speeds made crossing the streets extremely dangerous. The state of solid waste management in the city is quite dismal. After contractual complications prevented the involvement of a foreign company in this service, KMC’s performance fell well below desirable standards.

The KMC complains of a low revenue base. This merits a review of the collection of current levies. The city has a huge revenue generating potential when it comes to property tax. Under-reporting of land values ​​and poor collection practices are just two of the various ills in this sector. The city’s water supply is almost free for those who obtain it from the pipes or those who obtain it through informal means. The recovery rate is well below 40%. Many consumers get their water from very expensive tankers. There is no control to regulate the cars and motorbikes which today number two million. They constitute a real source of income linked to the tax on motor vehicles. The non-use charge on vacant land is another item that can be explored.

KMC should review the concept and application of municipal charges. The proposal for new taxes must come from the premise of the beneficiaries and those affected. Those who benefit should share the cost of the investment. Adequate allocation must be ensured for less developed localities in terms of basic infrastructure. An equalization fund can be created to establish the mechanism of public expenditure in less favored localities. These funds take a certain percentage of taxes collected from affluent localities with the aim of developing less developed contexts. In addition to exposed infrastructure components, consideration should also be given to the revitalization of tile drains, conduits and pipelines. The tariff and the schedule of royalties must be fixed after a scientific examination of the realities on the ground. Visible stakeholder participation can add substantial value to the exercise.

The author is a Karachi-based scholar and researcher

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