A Proposal for Land-Based Urban Property Tax Reform in Punjab and its Distributional Implications
Published - Mar 25, 2024This paper proposes a reform of Punjab’s urban residential property tax, of which the key features are: taxing land area alone, removing differential treatment of rented and owner-occupied properties and at least partially dismantling size-based tax exemptions. We estimate the distributional impacts of the proposed reforms by conducting revenue-neutral simulations of three versions of a pure land-tax: (1) no distinctions are made by property band or occupancy status and all exemptions are discontinued; (2) properties in higher valuation bands are taxed at higher rates, but distinctions by occupancy status are discontinued, along with all exemptions; (3) tax rates as calculated in (2) are applied, but social exemptions and size-based exemptions for the lowest two valuation bands are retained. We recommend the third version but with an upper cap of Rs4,000 on tax increases and to maintain revenue neutrality, a lower limit of Rs10,000 on tax reductions. For this variant, we find that 21.4% of properties receive a tax reduction, 26.8% experience no change, 48.5% face an increase of Rs2,000 or less and only 3.2% face an increase of Rs2,000- 4,000. For those that will be capped, we propose that caps are removed over time as properties change owners.
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Jafarey, S., Khan, M. T. J., Nasim, A., & Piracha, M. M. (2024). A Proposal for Land-Based Urban Property Tax Reform in Punjab and its Distributional Implications, IDEAS Working Paper No. 1-24, Institute of Development and Economic Alternatives.