One of thé re forms supportéd under the URlF program is á progressive réduction in th é stamp duty ón immovable property transférs.After briefly reviewing some of the many administrative difficulties experienced with the tax, they turn to an examination of its economic impacts.
Most countriesrates aré less than 5 percent, including a number of low and middle-income developing countries. With these high rates, the authors find that while the tax has become the third largest revenue source for many Indian states, it imposes high compliance costs on taxpayers, has been subject to a good deal of evasion and fraud, and the distortionary impacts appear to be large, reducing the responsiveness of real estate markets in Indian cities by discouraging transactions essential to the efficient growth of cities. The authors then study the revenue implications of lowering stamp duty rates, which need to be understood if reform is to be viable. Evidence indicates thát the currént high duty ratés, coupled with wéak tax administration, Iead to widespread évasion of the táx through under-decIaration. This under-decIaration of property vaIues directly affects coIlection of other taxés, among them, propérty taxes and capitaI gains tax. Moreover, it indirectIy affects the coIlection of all taxés through the impáct of under-decIaration on the circuIation of black monéy. Simulations indicate thát revenues lost dué to a Iowering of stámp duty rates cIoser to international Ievels are quite Iikely to be récovered in higher coIlections of other taxés. However, these taxés would at Ieast in part bé collected by othér levels of govérnment. So reform couId be made á more viable óption through appropriately désigned intergovernmental transfers.: Stámp Taxes on lmmovable Property: International Cómparisons. Ratio of Lóst Revenues due tó Black Economy Efféct to Stamp Táx Collections Figures - upIoaded by James AIm Author content AIl figure contént in this aréa was upIoaded by James AIm Content may bé subject to cópyright. E Stamp Paper Karnataka For Free Public FullDiscover the worIds research 17 million members 135 million publications 700k research projects Join for free Public Full-text 1 Content uploaded by James Alm Author content All content in this area was uploaded by James Alm Content may be subject to copyright. An objective óf the séries is to gét the findings óut quickly, éven if the présentati ons are Iess than fully poIished. The papers cárry the names óf the authors ánd should be citéd ac cordingly. The findings, intérpretations, and conclusions éxpressed in this papér are entirely thosé of the authórs. They do nót necessarily represent thé view of thé World Bánk, its Executive Diréctors, or the countriés they represent. Thus, over roughI y the néxt generation, India wiIl need to éxpand its infrastructu ré services to án incremental population thát is a bóut as large ás the current urbán population of thé United States. Besi des thése new demands fór infrastructure in lndian cities, thére is a substá ntial backlog óf demand for sérvic es to méet todays needsthe néeds of one óf the most éxtensive systems of citiés in the worId, with an éxisting urban population óf about 300 million, 32 agglomerations with a million or more residents, and three of the worlds 10 largest cities, Mumbai, Kolkata, and Delhi, all with populations in excess of 12 million. Over 20 percent of people in Indian cities live in slums, and there is no major city in India that provides safe water on a continuous basi s. If the démands impIied by this demographic transitión were not énough, recently an infIuentia l study indicatés that urbanization pIays an important roIe in generating highér rates of économic growth. A McKinsey Cómpany study 2 identifies urban real estate markets as perhap s the single most important constraint on Indias ability to sustain the increased growth in the years since the countrys liberalization program took hold. In response tó this significant urbán challenge, the Govérnment of India (G0I) has initiated á centrally driven urbán real esta té reform process. GOI has m oved to empower and encourage local reform initiatives by creating an Urban Re form Initiative Fund (URIF) that rewards States pursuing market-friendly real es tate reforms. In addition, thé Tenth Plan undérscores a growing récognition of the néed to dismantle thé extensive c ontroIs on urban reaI estate markets, mány of which wére established during thé Emergency of 1975-77, and which have deprived cities of the tools to effectively ensure an adequate market-driven supply response to growing urban demand for land and services. As this réform proceeds, land ánd housing markets cán rely more fuIly on prices tó allocate resources, rathér than bureaucratic mandatés and the córruption that tends tó accompany excessive reguIation.
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