Politics of Karachi’s municipal taxes

Politics of Karachi’s municipal taxes

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or the past few weeks, the politics of municipal tax collection has taken centre stage in Karachi. Officials of Karachi Metropolitan Corporation (KMC) are of the strong view that municipal utility charges and taxes (MUCT) must be collected through an efficient collection mechanism to bolster the KMC’s finances. To meet that end, the KMC sought to collect these charges through electricity bills.

A strong opposition to the plan was voiced by various quarters. Many people are of the view that the current economic recession does not make it an opportune time to impose new levies. The citizens are already grappling with the issues of power shutdowns and poor service in water supply, sewerage and drainage sectors. It is argued that burdening the common man with another financial charge is grossly unjustified. Many political parties, chiefly the Jamaat-i-Islami (JI), have sprung into action. Through protests, lobbying and legal petitions, they are trying to stop what they describe as an unjust levy on the hapless citizens of Karachi.

The JI contends that the local bodies in the city are under the direct control of the provincial government. It says the provincial government has made no visible effort to start vital maintenance work the metropolis requires, especially after the crippling monsoon rains. Roads, streets, lanes, water supply mains, drainage channels, sewerage lines, solid waste management spaces, footpaths, pedestrian bridges, natural drains (nullahs), traffic signals, green belts, bridges and other components of essential civic infrastructure have been completely or partially damaged. Recently, the top court in Sindh has stopped the KMC and the power utility from collecting municipal levies through 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 with respect to the fulfillment of certain conditions. Income tax is collected from those who earn more than the threshold incomes. Property tax and rates are charged from the owners of immovable property and motor vehicles tax from users of vehicles in stipulated categories. Each category clearly defines the inclusion and exclusion of user groups according to respective characteristics. The basic objection is that the KMC has taxed a set of public goods that must be freely accessible to all citizens. A healthy environment has been a long denied right. This argument derives from the fact that the city contributes the highest proportion of direct and indirect taxes to the national exchequer. A better living environment and the corresponding infrastructure are therefore seen as a matter of right, not a charged privilege.

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

It may be noted that after the passage of the 18th Amendment in 2010, the provincial share in the National Finance Commission award has significantly increased. Over a trillion rupees a year have been transferred to the provincial coffers. As Karachi accounts for more than a third of the province’s population, one might assume that a proportional amount would be allocated for shoring up its urban infrastructure and providing for related needs. But nothing of the sort has been done. Disappointingly, the Provincial Finance Commission, responsible for allocating and distributing funds to various districts in the province, has remained largely dysfunctional. Karachi is also the prime location for real estate development that generates billions in value addition. However, the city ends up collecting a paltry Rs 1.6 billion or thereabout in this tax. It may be noted that property tax is one of the foremost taxes imposed on urban and suburban properties on the owners who are the direct beneficiaries of capital investments and general price escalation of their properties. Rs 8.5 billion was collected through motor vehicle tax, despite the fact that the city reports registration of over 900 cars/ four-wheelers and over 1,000 motorcycles every day.

The MUCT is likely to divide the city into ‘have’ and ‘have not’ quarters. The upper- and middle-income localities, commercial areas and posh localities shall be the focus of this levy and perhaps consequent spending. Irregular areas, expanding low-income neighbourhoods and peri-urban areas will eventually be let to their own fates. Pressure from tax payers will not allow the public infrastructure spending to address the less privileged localities. New projects shall keep evolving around the old contexts. It is already well-known that roads and highways only marginally benefit low-income localities. Additionally, the jurisdiction conflicts need to be resolved. The residents of neighbourhoods not falling in the KMC control shall continue to get services through alternative providers but the residents in the municipal limits will be burdened with the payments of levies.

The coverage of new levies must consider the nature and scale of users. For instance, road user charges must be revisited, and probably made commensurate with the road development schemes that have been undertaken recently. Benefits to motorists should not be charged to pedestrians or property owners. It may be noticed that the lion’s share of recent investment has gone into roads, expressways, fly overs, interchanges and by-passes. In a majority of the cases, road widening schemes have deprived the pedestrians of the basic right to proper sidewalks. There are too few pedestrian crossings. High velocities of traffic have rendered crossing of streets prohibitively dangerous. The status of solid waste management in the city is utterly dismal. After contractual complications did not allow the involvement of a foreign firm into this service, the performance of the KMC has been far below the desirable standards.

The KMC complains about a low revenue base. This merits a review of the recovery of current levies. The city has enormous potential for revenue generation with respect to property tax. Under statement of property values and poor collection practices are only two of the various ailments in this sector. Water supply in the city is almost free for those who get it from the pipes or those who obtain it through informal means. The collection rate is well below 40 percent. A vast number of consumers get their water supply from super-expensive water tankers. There is no monitoring to regulate the cars and motor bikes that now number two million. They are a genuine source of revenue pertinent to motor vehicles tax. Non-utilisation fee on vacant plots is another head that can be explored.

The KMC must re-visit the concept and application of municipal charges. The proposal of new taxes must emanate from the premise of beneficiaries and the affected. Those who benefit should share the cost of investment. Adequate allocation must be ensured for less developed locations in terms of basic infrastructure. An equalisation fund can be created to establish the mechanism of public spending in less privileged localities. Such funds draw a certain percentage of taxes collected from affluent localities for the purpose of developing less developed contexts. In addition to the exposed components of infrastructure, attention should also be paid to revitalising underground drains, conduits and pipelines. The tariff and schedule of charges need to be fixed after a scientific review of the ground realities. Visible participation of stakeholders can add substantial value to the exercise.

Published in The News By Do Noman Ahmed 09 Oct 2022

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