Taxation is the suitable way to fund local government services. The local taxes help to increase the revenue base of local governments. The taxes are collected by Village Panchayats, Municipalities and Corporations that are very close to the people. District and Block Panchayats do not have the rights to collect taxes. They are considered as the spending agents of higher-level governments. As the tax system is not centralized, it has got many disadvantages.
Property tax is a main method of revenue for the Grama Panchayats, Municipalities and Corporations. This tax is an equitable and progressive tax. It increases with the quantity of access to local services for the property. Poor people are exempted from the property tax system. The state Government has decided to introduce assessment of property tax based on their plinth area based. This is applicable for both residential and non-residential commercial buildings. But this new decision has not been implemented so far and so the property tax is collected based on the rental value itself.
In Grama Panchayat, the property tax is collected at the rate of 6-10 % of the annual rental value of the building. But most of the local governments are collecting taxes at a lower range. The taxes are not periodically revised as a result of which the periodic increase cannot be utilised by the local governments. At times, the taxes are not collected properly and this can be improved by making rules such as paying penalty for nonpayment of taxes. The annual rental value in municipalities is at the rate of 5% to 25% whereas in Corporation it is 6% to 25%.
Profession tax is the tax that is collected from the companies and individuals who perform business of work in any corporate for at least 60 days in a half-year. All such people are required to pay a tax at a rate that has been fixed by the local government. This type of tax is the second largest source of income for the Grama Panchayats.
Entertainment tax is mainly collected from the cinema theatres and it constitutes the third largest source of income for Grama Panchayats. The rate of tax is fixed at 24% to 48% of the price of admission. There is a reduction in the entertainment tax obtained due to the arrival of cable network. So the rate has been reduced further to 25% in case of other language films and 15% in case of Malayalam films. In Grama Panchayats there are rarely any theatres. The cable television is not currently under the tax net.
In Kerala, marketing is done on a large scale. So levying advertisement tax is beneficial. The minimum rates are decided by the state government whereas the maximum rate can be decided by the local government.
Collecting service tax is prevalent only in Grama Panchayats. It is considered as an additional tax and the minimum rate is fixed by the Government. In Urban Local Governments, the service tax is collected as part of the property tax itself.
Taxes can be collected by the local governments for every show such as any entertainment, exhibition, performance, game, sport etc that is performed in their place. The tax collected are very negligible and so most of the local governments do not collect them.
Cess on Conversion of Land Use
When a land is being converted from paddy field, marshy land or any water body into a garden or building site, the local government can levy a cess. This cess is collected only once and is at the rate of 5% of the land value in case of paddy fields and 2.5% in case of other kinds of conversion.
Grama Panchayats can impose surcharges up to 5% of the property tax by implementing any schemes. This can be used by them to meet any other expenditure. In Municipalities, the surcharge is collected at the rate of not more than 10% of any tax except profession tax. Only two surcharges at a time are admissible.