Decentralization Analysis Cell

Department of Rural Development and Panchayat Raj Government of Karnataka

Study on Understanding Determinants of Own Source Revenue in Gram Panchayats of Karnataka

FINAL REPORT

JANUARY 2013

Centre for Budget and Policy Studies 4, M N Krishna Rao Road Bbasavangudi Bangalore 560004

Table of Contents

Executive Summary 1. Introduction 7 2. Reasons for low own source revenue 7 3. Policy options for enhancing low own source revenues 9 4. Determinants of Own source revenue 9 5. Objectives of the study 11 6. Approach and methodology 11 7. Sampling Plan 11 8. Gram Panchayat Finances 13 9. Analysis of OSR components 14 10. Factors influencing OSR mobilization-Analysis of secondary data 16 11. Regression Analysis for OSR determinants 21 12. Factors influencing OSR mobilization-Analysis of primary data 23 13. Analysis of Outliers 25 14. Analysis of complete sample 28 15. Conclusion and Recommendations 38

List of Annexures A Categorization of Taluks as per Nanjundappa Committee Report 39 B Division wise, District-wise selected Sample Gram Panchayats 42 C Sources of Revenue and Expenditure responsibilities of Gram panchayats 47 D Instruments used for collection of data from Gram panchayats 50 List of Tables A1. Distribution of GPs (Percentage) – Population by Per capita OSR (Category-wise) 70 A2. Distribution of GPs (Percentage) – Proportion of SC Population by Per capita OSR 71 (Category-wise) A3 Distribution of GPs (percentage) – Proportion of ST Population by Per capita OSR 72 (Category-wise) A4 Distribution of GPs (percentage) – Proportion of Marginal Workers to Total Workers 73 by Per capita OSR (Category-wise) A5 Distribution of GPs (percentage) – Proportion of Marginal Workers to Total Workers 74 by Per capita OSR (Category-wise) A6 Control variables for OLS regression analysis 75

References 76

Acknowledgments

The study report has been prepared by Sri A Srinivas Kumar with inputs from Mr. BV Madhusudhan (in framing the instruments, supervising primary survey and data analysis), Ms. Divya Krishnaswamy (in framing the instruments for survey), Ms. Shobha Veigas (in training the field investigators and supervising the primary survey); and Mr. Sreekanth and Ms. Krushna Ranaware (in helping with the data analysis). The team is grateful to Dr. Jyotsna Jha, Director, CBPS and Dr. Vinod Vyasulu, Adviser, CBPS for their comments on the initial findings and the draft report. We wish to thank Prof Thomas Issac, Former Finance Minister, Government of Kerala and Mr Anand Sahrasanaman, Faculty, IFMR, Chennai for their comments on the draft report. The team is also grateful to Ms. Padma Krishnarao and Decentralization Analysis Cell for their guidance and facilitating data collection.

Understanding Determinants of Own Source Revenue in Gram Panchayats of Karnataka

Abstract

The Own source Revenue (OSR) of Gram Panchayats has been subject of many studies which have examined the aspect of low OSR collection and reasons for the same. Reluctance on the part of the GP to mobilize own revenue has been seen as a principal reason for low OSR. Also GPs involvement in implementation of several developmental schemes of the state and central governments is stretching their already scarce resources and thus adversely affecting their capacity to collect own revenues. Nonetheless, some GPs seem to do better in collecting revenues than others. Some studies have found a positive correlation between economic development and the level of OSR.

A study undertaken by CBPS for Government of Karnataka attempts to identify determinants of OSR in the GPs of Karnataka. The secondary data analysis done on the basis of socio economic data confirmed the relationship of OSR with variables of economic development. In addition to relating OSR with socio economic variables, the primary data analysis also involved a detailed survey of tax administration and relating it to level of OSR.

Expectedly, the study finds that OSR is positively related to level of development; however, it has also found that management of tax records including their periodical updating, availability of adequate human resource capacity, attitude of elected members were some of the significant determinants of OSR. On the basis of determinants identified by the study, it is felt that there is a need for a) supervision of GPs by either the TP or ZP in respect of revision of tax rates, enhancing the tax base and overall performance with regard to OSR collection, b) improvement of tax administration in terms of engagement of sufficient number of bill collectors, payment of their salaries in full and on time, proper maintenance of tax related records, etc. c) building capacity of elected representatives in tax administration and motivating them to take leadership role in development of the GP.

Key words: decentralization, devolution, panchayati raj institutions, local government, own source revenue

Understanding Determinants of Own Source Revenue

Executive Summary The Constitution has placed the Gram Panchayat at the centre of the rural governance. While Article 40 of the Constitution envisages the Gram Panchayat to function as vibrant units of local self governance, an attempt turn this into a reality has been made with the 73rd and 74th Constitutional Amendments which have created constitutionally mandated third tier of government in the rural and urban areas respectively. Karnataka has been in the forefront of experiments with the decentralization in the country. The decentralized governance set up came into existence in the state much before the 73rd and 74th Constitutional Amendments. Of the three levels of local government, Gram Panchayat is the lowest tier and is closest to the people. It is also the only tier of local government which has the power to tax as per the Karnataka Panchayat Raj act 1993. The own source revenues include taxes on land and buildings, the water charges, license charges, fees for various services and certificates provided by the GP. In addition to these, GPs receive grants from the state and central governments. These grants are generally tied to specific purpose of development activity. The Thirteenth Finance Commission (TFC) highlighted the need for the augmenting the revenues through better tax administration and improved collection efficiency along with provision of better quality of services. Accordingly, the concept of performance based grants was introduced for the TFC period starting from 2010-11. The Own Source Revenue (OSR) in the GP has been the subject of many studies. These studies have examined the aspect of low OSR collection and reasons for the same. Reluctance on the part of the GP to rise own revenues has been as a principal reason for low OSR. Proximity to voters is a factor that works adversely in the OSR collection as highlighted by many studies. This situation is further aggravated by the state and central governments using GPs as agents for implementing a variety of their developmental programmes stretching their already scarce resources. Higher literacy and lower dependence on agriculture, both indicators of economic development, were found to positively correlated with OSR in the state of West Bengal. Generally, the studies find a positive correlation between economic development and the level of OSR. The present study attempts to identify determinants of OSR in the GPs of Karnataka. A purposive stratified sample of 128 GPs, equal number of good performing and poor performing GPs, were selected for the purpose of the study. The administrative division as well as the development category as identified by the High Power Committee for Redressal of Regional Imbalances (HPCRRI) headed by Dr D. M. Nanjundappa were considered while selecting the sample GPs. The sample GPs are spread over all the four divisions, 24 districts and 64 taluks. Instruments for primary survey were piloted in a GP followed by their finalization in consultations with experts and Decentralization Analysis Cell. In addition to primary data collection, the study also involved interviews with the GP members as well as the Focus Group Discussions with select members of public in the GP.

Centre for Budget and Policy Studies Page 5

Understanding Determinants of Own Source Revenue

The secondary data analysis was done on the basis of socio economic survey data provided by the RDPR. In addition to confirming the relationship of OSR with variables of economic development, the secondary data also revealed issues relating to tax administration. The outlier1 GPs were analysed to identify the underlying factors for poor performance despite favorable circumstances and good performance in spite of unfavorable circumstances. It was seen that the GP elected members’ experience and education had a positive correlation with OSR collection. Good performing outliers were seen to have better tax record management. The primary data analysis involved relating OSR performance with various demographic, socioeconomic and other variables like population, literacy, the distance to the taluk and district head quarter, closeness to highway, proportion of SC/ST in the total population. The primary data analysis also involved detailed examination of tax administration, book keeping, tax collection efforts, updating of various registers and so on. The GP members’ interview were analysed for their responses. The FGD and the field observations were also analysed. The study finds that management of tax records including their periodical updating, availability of adequate human resource capacity, attitude of elected members were some of the significant determinants of OSR. The study revealed that the differences across divisions were more marked than across development category. On the basis of determinants identified by the study, it is felt that there is a need for a) supervision of GPs by either the TP or ZP in respect of revision of tax rates, enhancing the tax base and overall performance with regard to OSR collection, b) improvement of tax administration in terms of engagement of sufficient number of bill collectors, payment of their salaries in full and on time, proper maintenance of tax related records, etc. c) building capacity of elected representatives in tax administration and motivating them to take leadership role in development of the GP.

1 GPs belonging to forward category taluks and with otherwise positive development indicators performing poorly on OSR collection and GPs belonging to most backward category and with otherwise poor socio economic indicators performing well on OSR collection Centre for Budget and Policy Studies Page 6

Understanding Determinants of Own Source Revenue

1. Introduction The seventy-third Constitutional Amendment envisages delegation of functions to Gram Panchayats to be matched by adequate devolution of funds by empowering them to raise sufficient own source revenues. As many as 28 taxes and rates have been assigned to the gram panchayats, most of them being local in character (Oommen, 2008). There are essentially three types of taxes which have been devolved to the Panchayats:

a. Own taxes - the levy, collection and use of which vests in the panchayat by statute – e.g. property tax, professional tax, advertisement tax, etc.; b. Own non-tax revenues – panchyats are permitted to collect a range of fees e.g. license fees, fines and penalties, rents/leases from panchayat properties, etc.

c. Assigned taxes - the levy and collection of which vests in state but its use vests in the panchayat (e.g. entertainment tax, stamp duty, etc.). It is observed that not only is there a large variation among states in the functions devolved to PRIs due to discretion allowed to them in this regard, but even among those clearly devolved to the PRIs, very few are in their exclusive domain. The panchayats are handicapped not only by the many restrictions placed on the exercise of powers; they also have no administrative control over functionaries who report to their superiors in the line departments of government. Notwithstanding the powers of taxation devolved to panchayats, as observed by Dr C Rangarajan, ‘in practice, internal revenue mobilization (IRM) has been observed to play a very limited role in the finances of the Panchayats. The data on Panchayat Finances supplied to the Eleventh Finance Commission showed that the IRM constituted only 4.17% of the total revenue of Panchayats at all levels in 23 states during 1990-91 to 1997-98. In a few states like Bihar, Rajasthan, Manipur, and Sikkim, IRM by the Panchayats during the period was totally absent.’ What are, then, the reasons for such low collection of own source revenues? 2. Reasons for low own source revenues The GPs’ OSR is a function of tax base, tax rate and tax effort. There are many reasons for the poor performance of panchayats in mobilizing own source revenues. The panchayats’ powers to levy taxes and rates are severely constrained by rules, procedural restrictions and conditions with most states following the practice of ‘assigned taxes’ (Oommen2008). With regard to tax rates, the state governments usually prescribe them either in absolute amounts or as percentages of the size of the tax base. Buildings and lands which are exempt from the tax rate are also usually specified in the statute or executive instructions of the state government (Report of Chattisgarh State Finance Commission). Anand Sahasranaman (Anand S, 2012) identifies following reasons for poor own source revenue or internal revenue mobilization of GPs:

Centre for Budget and Policy Studies Page 7

Understanding Determinants of Own Source Revenue

a. General reluctance on the part of panchayats to raise own source revenue as they are incentivized by state governments to spend funds devolved under specific schemes and not levy taxes for fear of losing vote base; and b. Lack of administrative capacity to collect taxes; Pratap Ranjan Jena and Manish Gupta, who have studied evidence of revenue efforts in four states, also observe that non-collection of even obligatory taxes by large number of GPs in Madhya Pradesh and Chhattisgarh was because of lack of willingness and poor administrative capacity. The GPs were generally provided with one secretary who acts as a record keeper and looks after the administrative matters as well. The situation becomes worse in case of State-appointed record keepers who manage more than one GP and panchayats have less control over them. The administrative capacity of the panchayats is further overstretched with PRIs being preferred implementing agency for various central and state development schemes. As a result the panchayat administration is more geared towards implementation of these schemes; and own revenue collection effort takes a back seat. (Pratap Ranjan Jena, Manish Gupta (2008) There is a general agreement among scholars who have studied panchayat finances that GP leaders are hesitant to enforce the tax on local elite. The problem is that properties are dramatically under assessed and even the assessed taxes are not collected fully. Pal and Adak (undated2) estimated a ratio of collection to demand of 26 percent in 2001. The predominance of central and state schemes being implemented through panchayats has had an adverse effect on their ability to collect own source revenue. Anand S argues that ‘when there are a plethora of schemes, political economy considerations dictate that local panchayat officials are better served by attempting to spend these funds in a timely manner in their constituencies rather than trying to raise own revenues through taxes and fees.’ (Anand S, 2012) It has also been observed that panchayats do not have incentives to provide even basic public infrastructure and services of a minimum standard to their citizens because their funding is not contingent on performance. They receive their assigned and devolved revenues, irrespective of the quality of services they provide. The accountability of the local government to its citizens is compromised because panchayats are incentivized to look up to the state government for funds, rather than look out for its citizens. (Anand S, 2012) To sum up, rigidities in expanding tax base and varying tax rates on the one hand and lack of tax effort for one reason or the other appear to have resulted in low own source revenues of gram panchayats.

2 Quoted by Roy Bahl, Geeta Sethi and Sally Wallace (2009) Centre for Budget and Policy Studies Page 8

Understanding Determinants of Own Source Revenue

3. Policy options for enhancing low own source revenues The options seem to be fairly obvious in that they would need to address the issues relating to tax base, tax rates and tax effort. Roy Bahl, Geeta Sethi and Sally Wallace (2009) offer the following options: a. First, some potentially productive tax bases must be assigned to gram panchayats, along with powers to set the tax rates. b. Second, the capacity of the states to better administer local taxes should be upgraded so that tax effort might be increased. c. Third, the ability to improve the collection rate of taxes and non tax sources should be strengthened. In this regard the staff support of the panchayat secretary could be upgraded. d. Fourth, rural local governments might be given some significant incentives to upgrade the tax effort. This might be done in three ways. One is to put no restriction on how the money can be spent. A second is to increase the taxing powers of gram panchayats either by assigning them additional taxes or removing any tax rate limits. The third approach is to reward tax effort through the system of transfers with a kind of incentive grant. Oommen also argues in favour of making the tax and non-tax revenues of local governments more productive and elastic through rationalizing the tax base, rates and more importantly tax administration along with greater autonomy and empowerment to the GPs. (Oommen 2008) Principally there were two problems with tax rates a) floor rates were not prescribed as a result panchayats could get away with fixing very low rates; and b) the rates were not revised for long periods. In a way, as Dr Rangarajan observes, the local bodies which need to do their best to raise as much resources as possible through the various avenues available to them, are not exercising in full the powers given to them to raise revenues. In order to force their hands as it were, what Anand S (2008) recommends might be a plausible solution. He suggests that SFCs should recommend maximum and minimum tax slabs (bands) for house taxes and professional taxes. Each panchayat should enjoy the discretion to set its rates anywhere within the band. This will ensure that panchayats keep their tax rates at viable levels and not continue at the depressed levels they are now. Each new SFC would come up with fresh recommendations on appropriate tax bands, thus ensuring that panchayats will have to calibrate their tax rates every five years. This arrangement ensures that while tax rates are set within SFC-defined bounds, panchayats have the autonomy to choose the rates in the band that best suit their situation. 4. Determinants of own source revenue It is seen that own source revenues are generally very low across the gram panchayats without exception. Even so, there are significant variations among them with some doing better than others. Andrew Young School of Policy Studies (Roy Bahl, Geeta Sethi and Sally Wallace-2009) which conducted a study on Fiscal Decentralization in West Bengal posed the same question as to ‘why do some gram panchayats raise more own source revenue than do Centre for Budget and Policy Studies Page 9

Understanding Determinants of Own Source Revenue

others?’ It conducted an analysis of per capita own source revenues including tax and non-tax sources as the dependent variable and the following independent variables based on the following a priori reasoning:

Population size should be positively correlated to per capita own source revenues because agglomeration of population suggest greater taxable capacity;

A larger percentage of SC/ST population suggests a greater concentration of poor households and less taxable capacity; a negative relationship with per capita own source revenues;

A higher literacy rate suggests a greater taxable capacity and a positive relationship with the level of own source revenue.

Higher proportion of agricultural workers in the economy will signal more difficulty in tax collection and arguably a weaker taxable capacity.’ Further it hypothesized that large intergovernmental transfers have a significant impact on local revenue mobilization i.e. transfers may dampen the enthusiasm of local governments to be aggressive about collecting tax and non tax revenues. They found that ‘per capita own source revenue in gram panchayats are higher where there is more literacy, where a smaller share of population is employed in hard-to-tax agriculture sector, and where there is greater inflow of transfers.’ The Karnataka’s Third State Finance Commission also studied the determinants of GPs’ propensity to incur deficit or to be chronically in deficit (experiencing shortfall in each year during the period from 2002-03 to 2006-07). The analysis showed that GPs with higher percentage of SC/ST population and percentage of agricultural population are positively associated with experiencing deficit. Probability of GPs with higher population size experiencing chronic deficit was seen to be high. The impact of large inflow of scheme funds (grants) has also been studied by P Shaheena based on data relating to Kerala’s plan grants and other transfers to gram panchayats. The tests confirmed the hypothesis that untied plan grants have a dampening effect on revenue mobilization. On the other hand mobilization of revenue from major taxes (building tax, professional tax and entertainment tax) is significantly and positively related to their respective bases. Tax efforts relating to optional taxes can be affected by unconditional grants’. (Oommen, 2008) In a study, M Govinda Rao and others analysed per capita own revenues and per capita revenue from property taxes on a number of variables representing the revenue capacity of GPs in a linear regression model. Altogether, the regressions were estimated with data from 639 GPs in the four districts of Karnataka. The results showed that revenue collections were not significantly higher in more prosperous panchayats. However, panchayats with greater proximity to taluk and district headquarters, and those with better connectivity and access to

Centre for Budget and Policy Studies Page 10

Understanding Determinants of Own Source Revenue

markets, were able to collect significantly higher revenues both from property tax as well as other sources of revenue assigned to them. The results also showed that the transfer system had not undermined the revenue collections of the GPs. (M. Govind Rao et al (Undated) In a study conducted by Nesar Ahmed in Kerala and Rajasthan, it was found that apart from the efforts made by the state government towards the decentralization process, Kerala with hundred percent literacy and better social indicators, probably, had a more conducive environment for ensuring greater participation. On the other hand in Rajasthan, a feudal society and higher level of poverty pose a challenge for participation. But the most important difference observed was that in Rajasthan, no body, neither the elected representatives nor the government officials at district level and below, nor the people, had confidence that the PRIs could indeed work. This lack of confidence is certainly a result of the way the whole system has been working so far. In Kerala also there was dissatisfaction expressed with PRIs and their functioning. But this discontent was result of an enhanced expectation of people from the panchayats.’ Nesar Ahmad (Undated)

5. Objectives of the Present Study This study undertaken by Centre for Budget and Policy Studies on behalf of Government of Karnataka seeks to understand the determinants of panchayats’ ability to mobilize revenue and to suggest policy options to create conducive conditions for enhancing their ability to generate own-source revenue. The study involved firstly understanding relationship of own source revenue with other socio economic variables through an analysis of secondary data. In the light of such an understanding, it attempts to identify critical variables affecting own source revenue through a sample study of gram panchayats selected from different levels of development. 6. Approach and Methodology In Phase I, the study tried to understand the present status of revenue generation in gram panchayats in Karnataka through an analysis of own source revenue across geographical divisions and development categories. Thereafter, the OSR was analysed with reference to certain socio economic variables. In Phase II, a sample of successful GPs and not so successful GPs was surveyed through a detailed questionnaire. These instruments included quantitative as well as qualitative information pertaining to the functions and processes that determine the OSR realization as also information on ‘good practices’ as well as ‘poor practices’. 7. Sampling Plan The sample Gram Panchayats (GPs) were selected by the following steps.

The accounting data from Department of Rural Development and Panchayat Raj available for four years from 2005-06 to 2008-09 was used for selecting the sample GPs as also for the analysis.

Centre for Budget and Policy Studies Page 11

Understanding Determinants of Own Source Revenue

The data included the fiscal summary, different components of revenue and expenditure and Own Source Revenue (OSR) and its components. GPs were screened for availability of data for all the 4 years. As data was not available for all the four years for all GPS, for the purpose of GPs selection, only those GPs which had all the 4 year data for both tax and non tax components of OSR were considered.

These GPs were grouped under 4 categories viz. Forward, Backward, More Backward and Most Backward based on the categorisation of taluks by the Dr. D.M. Nanjundappa Committee Report which identified the regional imbalances in development through various development indicators. As Nanjundappa Committee categorised up to only Taluk level, a GP was considered to belong to the same category as its taluk for the purpose of the study. That is, a GP in a more backward taluk was taken to be more backward. (Please see Annex A for a short note on the Committee)

The four administrative divisions viz. Bangalore, Belgaum, Gulbarga and Mysore exhibit distinct features in terms of development and administrative history. It was strongly felt that the intra division characteristics with respect to OSR be clearly identified. Hence GPs were selected under all of the 4 categories under each of the 4 divisions. The GPs were ranked with respect to their OSR performance under each category of GPs and 4 best performing3 GPs and 4 poor performing GPs were selected for the purpose of detailed study.

Thus 8 GPs (4 best and 4 poor performing) under each of the four categories totalling up to 32 GPs were selected for the study in each division. A total of 128 GPs from all the four divisions were selected for the detailed study covering 24 of the 30 districts and 64 of the 176 taluks in the entire state as shown in table below (sample GPs by Division and Taluk are given in Annex B): Table 1 – Coverage of GPs, Taluks and Districts in the Study Division Coverage in numbers Districts Taluks GPs Bangalore 7 19 32 Belgaum 6 16 32 Gulbarga 6 14 32 Mysore 5 15 32 Total 24 64 128 The non availability of data has been a major impediment in assessing fiscal performance of PRIs. One study has observed that ‘….neither central nor the state governments have data that allows them to accurately evaluate and monitor the fiscal performance of the PRIs.’ (Roy Bahl, Geeta Sethi and Sally Wallace (2009). An analysis of availability of accounting data showed that data for four years (2006-2009) was available for only 79% of GPs. While availability of data for four years was as high as 89 percent in case of GPs in Bangalore Division, it was as only 68% in case of Gulbarga (please see chart). For as many as 90 GPs the data for all the four years was not available; and of these 46 and 34 were in Belgaum and Gulbarga Divisions. When the availability of

3 Own Source Revenue as proportion of total revenue was considered for assessing performance - higher the proportion better the performance. Centre for Budget and Policy Studies Page 12

Understanding Determinants of Own Source Revenue

accounting data is analysed by category Division-wise availability of all four years (backwardness), it is seen that the variation is accounts data smaller – ranging from 77% to 83%. However, GPs with no data are spread among backward All GPs. Mysore 8. Gram Panchayats Finances Gulbarga Belgaum An analysis of Gram Panchayats finances for four years from 2005-06 to 2008-09 shows that Bangalore their own source revenue (OSR) has grown in 0 0.2 0.4 0.6 0.8 1 modest increments albeit at reduced rate between 2005-06 to 2007-08 and in 2009-10 it almost stagnated at the previous year’s level. The State Grants and Finance Commission Grants have been more erratic going up in one year and coming down the next year. Scheme funds on the other hand had gone up by as much as 115 per cent in 2006-07 over the previous year but have shown a negative growth rate in subsequent years.

Table 2 - Growth of Gram Panchayat Finances – 2005 - 2009 (In Rs crore) % % % 2005-06 2006-07 change 2007-08 change 2008-09 change OSR 135.38 170.63 26.04 202.69 18.79 205.36 1.32 State and FC Grants 333.68 432.84 29.72 224.30 -48.18 332.85 48.40 Schemes 453.62 976.01 115.16 1379.74 41.37 1435.03 4.01 Total 922.69 1579.48 71.18 1806.73 14.39 1973.24 9.22 Note: It needs to be pointed out that the figures / analysis have the limitation that accounting data for all GPs is not available for all the four years, and, therefore, the actual growth rates may vary if missing data is available. An analysis of composition GPs revenues shows that OSR remained in a low range of 11 per cent to 15 per cent, while proportion of scheme funds has remained high and has substantially increased. These figures are not affected so much by the missing data as proportions are relative to one another within the same year. It can be assumed that the relative proportions of OSR, grants and scheme funds would be more or less the same even with the complete data set.

Table 3 - Share of sources of Gram Panchayat Finances (in %) 2005-06 2006-07 2007-08 2008-09 OSR 14.67 10.80 11.22 10.41 State and FC Grants 36.16 27.40 12.41 16.87 Schemes 49.16 61.79 76.37 72.72 Total 100.00 100.00 100.00 100.00

Centre for Budget and Policy Studies Page 13

Understanding Determinants of Own Source Revenue

9. Analysis of OSR Components The OSR mainly comprises of both tax and non tax sources of gram Panchayat. The property tax (tax on buildings and land), general and special water tax, electricity tax, (Tax1) and advertisement tax (Tax 2) figure in the tax sources while the license fee (building and trade licences), other fees (khata transfer, bus stand fees, notice fees, market fees, fines, etc.), income from permanent asset and income from lease of pond /sale or lease of land and other miscellaneous incomes (Tax 3) figure among the non tax sources (please see Annex C for composition of GPs’ revenue and expenditure). Though there is provision of levying and collecting the tax and non taxes by the gram panchayats, not all of them levy and collect all the available taxes or non taxes. The actual number of taxes and non taxes levied varies across the state and is quite distinct across divisions. As mentioned above out of 5624 GPs, data for all the four years (2005-06 to 2008-09) is available in respect of only 4450 GPs. Even among these 4450 GPs, there are some GPs in whose case either only tax or non tax details are available. When availability of both tax and non tax details is considered, the number of GPs further goes down to 3431. For the purpose of this analysis, we have considered 3431 GPs for which complete data is available.

Table 4 - Tax and Non-tax collections 2005-09 by Divisions Tax and Non Tax Revenue (Rs Cr) Year on Year Growth (%) Division 2005-06 2006-07 2007-08 2008-09 2006-07 2007-08 2008-09 Bangalore 52.21 63.27 78.98 80.59 21.18 24.83 2.03 Belgaum 19.02 23.94 27.86 32.22 25.86 16.35 15.64 Gulbarga 2.34 2.64 3.59 6.51 12.65 35.91 81.56 Mysore 28.61 32.82 39.54 40.28 14.72 20.47 1.88 All 102.19 122.68 149.97 159.60 20.05 22.25 6.42 A comparison of tax and non tax revenue over 2005-09 shows that Bangalore and Mysore have the highest collection of OSR. The reason for Gulbarga’s low OSR is absence of data for a good number of GPs in this division. The OSR (tax and non-tax) across categories show that OSR is highest among forward category GPs. OSR of Backward GPs is just about a third of forward GPs. There is a clear trend with Forward category GPs leading the collections followed by the backward, more backward and most backward. Generally growth of OSR mobilization has been positive in GPs of all categories.

Centre for Budget and Policy Studies Page 14

Understanding Determinants of Own Source Revenue

Table 5 - Tax and Non-tax collections 2005-09 by Category Tax and Non Tax revenue (Rs Cr) Year on Year growth (%) Category 2005-06 2006-07 2007-08 2008-09 2006-07 2007-08 2008-09 Forward 53.71 63.85 73.72 80.92 18.89 15.46 9.77 Backward 19.00 24.93 30.31 33.88 31.17 21.61 11.78 More Backward 18.08 21.69 27.79 26.42 19.98 28.13 -4.93 Most Backward 11.40 12.21 18.14 18.37 7.06 48.61 1.27 All 102.19 122.68 149.97 159.60 20.05 22.25 6.42 Since the number of panchayats vary across division and the categories, collections per gram panchayat is used to observe the trend in a greater detail. The OSR per gram panchayat has increased from Rs 2.98 lakh in 2005-06 to Rs 4.65 lakh in 2008-09. The Bangalore division shows the higher OSR per GP followed by Mysore, Gulbarga and Belgaum divisions.

Table 6 - OSR (Tax and Non-tax Revenue) per GP by Divisions Rs lakhs Division 2005-06 2006-07 2007-08 2008-09 Total Bangalore 3.66 4.43 5.53 5.65 4.82 Belgaum 2.11 2.66 3.09 3.58 2.86 Gulbarga 2.13 2.40 3.26 5.92 3.43 Mysore 2.88 3.31 3.98 4.06 3.56 All 2.98 3.58 4.37 4.65 3.89 The OSR per GP also showed a similar trend with GPs of forward category showing highest followed by backward, more backward and most backward categories.

Table 7 - OSR (Tax and Non-tax revenue) per GP by Category Rs lakhs Taluk category 2005-06 2006-07 2007-08 2008-09 Total Forward 3.93 4.68 5.40 5.93 4.99 Backward 2.81 3.69 4.48 5.01 4.00 More Backward 2.18 2.61 3.34 3.18 2.83 Most Backward 2.04 2.18 3.25 3.29 2.69 All 2.98 3.58 4.37 4.65 3.89 An analysis of different components of the OSR i.e. the tax and non tax for years 2005-06 to 2008-09 shows that the property tax is the most important component of OSR followed by other taxes-3 (largely through the auction of tanks, lease of properties etc.). The property tax increased consistently over three years but decreased in year 2008-09. However, the water tax, electricity tax (tax-1), license fee, income from permanent assets recorded consistent increase over the 4 year period. The income from other tax-3 which is the revenue through auction of tanks, sale/lease of land also reduced in the year 2008-09.

Centre for Budget and Policy Studies Page 15

Understanding Determinants of Own Source Revenue

Table 8 - OSR components (Rs. crore) Tax and Non tax 2005-06 2006-07 2007-08 2008-09 Property tax 54.75 69.66 83.35 75.24 Water tax 17.45 19.86 24.67 27.70 Other tax-1 5.89 8.63 10.00 17.27 Other tax-2 4.43 10.23 9.02 12.65 Other tax-3 16.25 22.51 43.47 36.27 License fee 6.45 7.02 8.65 10.01 Other fee 21.39 23.72 12.60 13.41 Permanent Asset 8.78 8.99 10.94 12.81 Total 135.38 170.63 202.69 205.36 The share of various components were analysed across categories and the Divisions. In case of forward and the backward category GPs property tax made up almost one-third of all tax revenue; whereas in case of more backward and most backward GPs share of property tax and other taxes-3 (auction of tanks and lease of properties) had equal share in the total tax revenue of about 20 % each.

Table 9 - Share of different components of OSR by Category and Division (in %)

Property Water Other Other Other License Other Permanent Category tax tax tax-1 tax-2 tax-3 fee fee Asset Total Forward 32 11 8 7 14 6 12 10 100 Backward 31 10 9 8 18 4 11 10 100 More backward 22 12 10 11 22 3 9 10 100 Most backward 22 10 8 13 20 4 10 14 100 Total 28 10 9 9 17 5 11 11 100 Division Bangalore 37 8 10 7 15 4 11 8 100 Belgaum 20 16 10 11 22 3 11 8 100 Gulbarga 20 8 9 12 18 6 8 18 100 Mysore 25 12 8 8 16 5 12 14 100 Total 28 10 9 9 17 5 11 11 100 When the components of tax revenue are analysed by divisions, it is seen that Bangalore and Mysore divisions show property tax as the predominant component making up as much as one-fourth to one–third of tax revenue. In case of other two divisions the other taxes-3 and the rents from permanent asset form the significant proportion of tax revenue. The rents from permanent assets in Gulbarga division are very high mainly from the taluks in Bellary districts which has mining areas.

10. Factors influencing OSR Mobilization - Analysis of Secondary Data As has been seen from the literature survey, OSR of a GP may be influenced by several factors. Overall development of the GP would of course be a major determinant as it would imply higher economic activity and paying capacity of citizens. There are some very obvious

Centre for Budget and Policy Studies Page 16

Understanding Determinants of Own Source Revenue

indicators of development such as the state and availability of infrastructure e.g. piped water to households, road length, agricultural productivity and so on. The Nanjudappa Committee has used indicators for measuring development, in order to identify regional disparities and backwardness at the taluka level. The Committee developed a total of thirty-five indicators spread over five sectors viz. agriculture and allied, industrial trade and finance, economic infrastructure, social infrastructure, and population characteristics. Assigning precise weights to each indicator, the Committee created sector-wise indices for 175 talukas and categorized them as backward, more backward or most backward. Considering the fact that development (conversely backwardness) is a major determinant of a GP’s ability to mobilize OSR, it will be interesting to analyse GPs’ OSR with reference to backwardness category assigned by Nanjudappa Committee.

Table 10 - Proportion of different revenue sources in total revenue (2008-09) More Most Forward Backward backward Backward OSR 14.68 13.70 8.04 5.24 Grants 18.43 18.76 19.00 12.41 Scheme 66.88 67.54 72.96 82.35 Total Revenue 100.00 100.00 100.00 100.00 Expectedly the proportion of OSR falls from Forward to Most Backward GPs; and correspondingly, the proportion of scheme funds increases over the spectrum of high to low development. While this establishes broadly the relationship between OSR and development, the study has taken a few socio economic indicators for which data is available at GP level4 and analysed OSR with reference to them. While doing so, the data has been analysed by Division and Backwardness Category. In this way, the study tried to double check the hypothesis that level of OSR is determined by development as some divisions are also known to be more developed than the others. From among the socio economic indicators available, the study chose the following: a. Population b. Number of Revenue Villages per GP c. Proportion of SC in total population d. Proportion of ST in total population e. Proportion of marginal workers to total workers f. Proportion of BPL households to total households As for the Own Source Revenue is concerned, the study had adopted per capita OSR as a variable because absolute amount of OSR could be a wrong measure as larger GP might have higher OSR.

4 Socio Economic Survey 2006 Centre for Budget and Policy Studies Page 17

Understanding Determinants of Own Source Revenue

OSR by Population: Population has been identified as a possible determinant for own source revenue due to the agglomeration effect. Larger population tends to have bigger markets, entertainment, and organized employment and so on which provide opportunities for levying tax and non tax revenues.

Table 11 – Distribution of GPS by Per Capita OSR and Population (%age)

Per capita OSR (Rs) 0 - 20 21 - 40 41 - 60 61 - 80 81 - 100 > 100 Total 0 - 4000 6.05 27.76 29.34 19.21 6.32 11.32 100 4001 - 8000 21.91 34.83 20.65 9.07 5.19 8.35 100 8001 - 12000 21.06 26.97 18.94 8.64 6.21 18.18 100

per GP 12001 - 16000 16.85 26.97 21.35 8.99 3.37 22.47 100 Population Above16000 26.32 5.26 31.58 15.79 10.53 10.53 100

Above16000 Per capita OSR per GP 0 - 20

Per capita OSR per GP 21 - 40

12001 - 16000

Per capita OSR per GP 41 - 60 8001 - 12000

Per capita OSR per GP 61 - 80 Population per per PopulationGP 4001 - 8000 Per capita OSR per GP 81 - 100

0 - 4000 Per capita OSR per GP > 100

0 20 40 60 80 100 120

It can be seen that a larger proportion of GPs with higher population (say 8000 and above) fall in higher per capita (Rs 80 to more than Rs 100) groups as compared to GPs with lower population. Thus, there does appear to be a positive correlation between population size and OSR. However, this needs to be qualified as higher population seems to have a positive correlation with OSR only when accompanied by development. The GPs belonging to most backward and more backward taluks do not display the effect of population as in their case GPs with larger population also tend have lower average per capita. (Refer Table A1 at the end of this paper)

OSR by proportion of SC / ST in total population: Larger proportion of people belonging to SC or ST category is seen as an indicator of lower economic development as they generally form also the economically weaker sections of the society. Nanjudappa Committee also used this as one

Centre for Budget and Policy Studies Page 18

Understanding Determinants of Own Source Revenue

of the indicators of backwardness. One can see a positive correlation between proportion of SC in total population to OSR as more number of GPs with higher ranges of SC population (46 – more than 60) have lower per capita OSR, while the converse also holds good, that is, more number of GPs with lower proportion of SC have a higher per capita OSR.

Table 12 – Distribution of GPs by Per Capita OSR and proportion of SC in Total Population (%age) Per capita OSR (Rs) 0 - 20 21 - 40 41 – 60 61 - 80 81- 100 > 100 Total

0 – 15 12.70 33.43 25.44 12.49 5.66 10.28 100 16 – 30 24.65 32.15 18.87 9.07 5.41 9.85 100

31 – 45 25.13 31.87 17.71 8.09 5.23 11.97 100 of SC

46 – 60 33.33 24.73 20.43 7.53 4.30 9.68 100

Proportion Population Above 60 37.50 37.50 12.50 12.50 0.00 0.00 100

However, as in the case of population, the above inference needs to be qualified as when the above are disaggregated by category, it is seen that in case of GPs in forward taluks, a good proportion of GPs with high SC to total population show a high per capita OSR. This again goes to show that if a GP is developed higher proportion of SC population does not have an adverse impact on OSR. (Refer Table A2 at the end of this paper)

Above 60 Per capita OSR (Rs)

0 - 20

46 – 60 Per capita OSR (Rs) 21 - 40 Per capita OSR (Rs) 31 – 45 41 – 60 Per capita OSR (Rs) 16 – 30 61 - 80 Proportion of of SC Proportion ppulation Per capita OSR (Rs) 81- 100 0 – 15 Per capita OSR (Rs) > 100 0 20 40 60 80 100 120

In case of ST population as well there is a correlation with OSR with higher concentration of ST population being associated with lower per capita OSR. (Refer Table A3 for category wise analysis of Per capita OSR by proportion of ST at the end of this paper)

Centre for Budget and Policy Studies Page 19

Understanding Determinants of Own Source Revenue

Table 13 – Distribution of GPs by Per Capita OSR and proportion of ST in Total Population (%age) Per capita OSR (Rs) 0 - 20 21 – 40 41 - 60 61 - 80 81 - 100 > 100 Total

0- 15 16.61 32.13 22.92 11.30 6.01 11.03 100 16-30 31.85 35.67 15.92 7.01 3.03 6.53 100

31-45 41.03 30.77 14.74 3.85 1.92 7.69 100 of ST of ST

46-60 40.00 41.82 9.09 5.45 1.82 1.82 100

Proportion population Above 60 30.00 25.00 35.00 10.00 0.00 0.00 100

Above 60 Per capita OSR (Rs)

0 - 20

46-60 Per capita OSR (Rs) 21 – 40 Per capita OSR (Rs) 31-45 41 - 60 Per capita OSR (Rs) 61 - 80 16-30

Proportion of of ProportionPopulation ST Per capita OSR (Rs) 81 - 100 0-15 Per capita OSR (Rs) > 100 0 20 40 60 80 100 120

OSR by Marginal Workers / BPL Households: Higher proportion of marginal workers or agricultural laborers is associated with low ownership of assets and income that can be subject to tax. An analysis of proportion of marginal workers in total workers to OSR shows that GPs with higher proportion of marginal workers are more likely to be in lower per capita OSR bracket. As with other socio economic indicators, good proportion of GPs in forward taluks with high proportion of marginal workers fall under higher per capita OSR brackets as compared to GPs in backward taluks. This again goes to show that development is critical factor in GPs’ ability to mobilize own source revenues. (Refer to Table A4 for Category wise analysis at the end of this paper).

Table 14 – Distribution of GPs by Per Capita OSR and proportion of Marginal workers in Total Population Per capita OSR (Rs) More 0 - 20 21 - 40 41 - 60 61 - 80 81 - 100 than 100 Total

0-10 14.59 29.27 24.11 11.90 6.19 13.93 100 11-20 24.25 36.60 18.90 9.24 4.78 6.23 100

21-30 31.17 37.16 18.20 6.98 2.99 3.49 100

Workers Marginal Marginal Proportion 31& above 25.00 34.38 21.88 3.13 12.50 3.13 100

Centre for Budget and Policy Studies Page 20

Understanding Determinants of Own Source Revenue

Similarly GPs with larger number of BPL households have lower per capita OSR. When the same is disaggregated by category, it is seen that larger proportion of GPs in forward taluks with high proportion of BPL appear in higher per capita OSR bracket showing again that with development other determinants become less significant. (Refer to Table A 5 for category wise analysis at the end of this paper) Table 15 – Distribution of GPs by Per Capita OSR and proportion of BPL Households in Total Population Per capita OSR (Rs) More 0 - 20 21 - 40 41 - 60 61 - 80 81 - 100 than 100 Total

0-15 16.06 27.37 23.36 14.78 5.29 13.14 100 16-30 15.96 32.21 21.35 11.73 6.06 12.69 100 31-45 21.17 31.15 22.92 9.27 5.86 9.62 100

of BPL 46-60 21.43 35.20 20.92 10.41 4.18 7.86 100 Percentage Percentage Households Above 60 19.97 34.55 21.23 9.32 5.68 9.25 100

OSR by Revenue Villages: It was seen from data that number of revenue villages per GP varied from 4-5 to as high as 15. The study tried to see whether there was any correlation between the number of revenue villages and OSR. It was seen that GPs with larger number of revenue villages (11 to more than fifteen) had higher per capita OSR.

Table 16 – Distribution of GPs by Per Capita OSR and number of Revenue Villages in GP

Per capita OSR (Rs) More 0 - 20 21 - 40 41 – 60 61 - 80 81 - 100 than 100 Total

0 – 5 19.5 31.6 21.7 11.2 5.8 10.1 100 6 – 10 20.9 33.6 22.5 9.2 4.4 9.4 100

11-15 14.1 36.3 20.0 9.6 5.1 14.9 100

per GP Villages Villages Revenue Revenue Above 15 14.8 44.4 18.5 5.6 9.3 7.4 100 In all the above there are instances of GPs in backward taluk having high per capita OSR and conversely also GPs in forward taluks having low per capita OSR. These outliers actually hold the key to what makes the difference. An analysis of the outliers has been attempted below in the primary data analysis. 11. Regression Analysis The variables influencing the OSR were further subjected to examination through and OLS (ordinary least squares) regression analysis. The socio economic census data of 2005-06 has information on socio economic variables for all the GPs. The important variables include SC population, ST population, Total population, number of BPL households, total households, marginal workers, water collection rate per household, number of functioning piped water supply and bore wells, revenue villages, irrigation area, net sown area, asphalted road, metalled road, kuchcha road and street lights. However the errors in the data pertaining to those variables limited the choice of the explanatory variables to be used for regression

Centre for Budget and Policy Studies Page 21

Understanding Determinants of Own Source Revenue

analysis. The OSR data was missing for about 620 GPs.Given that socio-economic variables are available only for the time period 2005-06 and population variables are from the Census (2001), it was decided to make use of 2005-06 revenue information for the regression analysis5. The following equation represents the Ordinary Least Square model used to understand the determinants of total OSR (2005-06)6:

It was found that the regression estimates were biased due to the presence of heteroscedasticity, which if not corrected for can invalidate the statistical test of significance. The standard practice to correct for heteroskedasticity is to calculate the regression estimates and significance with robust standard errors, which is adopted for the study. Earlier studies have run a similar OLS regression to understand the determinants of OSR and have found out that percentage of SC and ST population, percentage of BPL households have a negative impact on the collection of OSR (see Roy Bahl, Geeta Sethi and Sally Wallace-2009). The number of functioning piped water supply and borewells acts as a proxy on the nature of delivery systems of a GP and whether better service delivery would encourage the local community to contribute towards OSR by paying taxes and fees properly. The control variables used for the regression analysis is provided in the annex The dummy variables have been used to control the influence of the division, as well as the taluk categories in the regression analysis.

OLS Regression Results (dependent variable Total OSR 2005-06)

Co- Independent Variables efficients Percentage of SC Population -57.35 t-stat -0.11 Percentage of ST Population -1620.0** t-stat -3.36 Percentage of BPL Households -1071.2** t-stat -2.6 Functioning _ Piped water supply 6280.5* t-stat -1.99 Functioning Borewells 357.9 t-stat -1.64 Water Collection Rate per Household 1639.5** t-stat -2.76

** - 1 % significance level;

5 RDPR website provides information about the revenue and expenditure dataset from 2005-06 to 2008-09. 6 Dependent variable for the OLS regression analysis Centre for Budget and Policy Studies Page 22

Understanding Determinants of Own Source Revenue

* - 5% significance level; + 10% significant level R-square – 36%; Number of Gram Panchayat - 5015 The regression results for the 5027 GPs and the following points out the influence of explanatory variables and its level of statistical significance: a. Percentage of ST population influences OSR negatively with a coefficient of 1620 (significant at 1% level), while a Percentage of SC population turns out to be statistically non-significant, even at 10% level, even though it negatively influence the OSR. b. BPL households (%) negatively influence the OSR, with 1 % increase in BPL households amounting to Rs. 1071.2 reduction in OSR for a GP (significant at 1% level). c. Water collection rate per household has a positive influence on OSR as expected (significant at 1% level). d. Variables such as the number of functioning piped water supply and bore wells7 are included in order to understand whether a GP providing better infrastructural facilities encourages the public to contribute to the OSR. It can be noted that these two variables have a significant positive influence on the performance of GP, in terms of OSR, validating our hypothesis that it encourages the local community to pay tax and non-tax when a GP provides better delivery of services 12. Factors influencing OSR Mobilization - Analysis of Primary Data

Instruments for Primary Data Collection: The primary data collection involved gathering of data from 128 gram panchayats spread over 24 districts and 64 taluks. A copy of the instruments used for data collection is at Annex D. The study used a questionnaire to collect primary data which were considered to have a significant relationship with GP’s ability to raise own revenues. They included the following:

a. Population; b. Distance from district and taluk headquarters; c. Literacy rate; d. Connectivity in terms of type of road and frequency of bus services; e. Composition of population in terms of social categories and occupations; f. Landholding, type of land (irrigated, dry, etc.), major crops grown and cropping pattern; and g. Wage rate.

7 Other variables such as street lights and type of roads could not be used due to problems relating validity of the numbers that have been complied. Centre for Budget and Policy Studies Page 23

Understanding Determinants of Own Source Revenue

Particulars of GP members such as their gender, educational qualification, occupation, experience and training were collected as it was felt that the profile of members would have a significant bearing on the OSR. Property tax being an important source of revenue for GPs, the questionnaire also gathered data on type of houses and their number; as tax administration critically depends upon willingness to change tax rates in keeping with times and capacity of bill collectors, a qualitative assessment of maintenance of tax records was attempted by examination of records in addition to collecting data on the frequency of changes in tax rates, arrears in collection of taxes, the number and qualifications of bill collectors. As the attitude of elected members of GP plays an important part in its mobilizing own source revenue, the study involved interviewing some office bearers and elected representatives of GP. Recognizing that cooperation and trust of citizens, who are the primary stakeholders, was an essential for a successful tax mobilization, a focus group discussion of citizens drawn from different walks of life was also conducted in each GP as part of primary survey. The results and an analysis of the primary survey are presented in the following paragraphs.

Profile of Sample Gram Panchayats: Average per capita OSR is significantly higher among GPs of Bangalore Division followed by those of Mysore Division. GPs in Gulbarga Division have the lowest OSR. Analysis by category confirms the generally held belief that GPs in forward taluks have a higher per capita OSR

Table 17 - Average Per capita OSR across Divisions and Categories Average per capita OSR (Rs) Division GPs 2005-06 2006-07 2007-08 2008-09 Bangalore 32 194 238 341 371 Belgaum 32 41 47 80 74 Gulbarga 32 38 66 78 72 Mysore 32 73 102 248 163 All 128 86 113 187 170 Category Forward 32 147 175 239 280 Backward 32 101 154 235 259 More Backward 32 52 61 176 71 Most Backward 32 47 63 97 70 All Karnataka 128 86 113 187 170 Surprisingly, GPs in Bangalore and Mysore Divisions which have a high per capita OSR show a high percentage of BPL households and also proportion of SC/ST in total population. The above trend is repeated when the above are analysed by category with GPs in forward taluks high percentage of SC/ST and BPL households.

Centre for Budget and Policy Studies Page 24

Understanding Determinants of Own Source Revenue

Table 18 - General Characteristics of Gram Panchayat by Division Average per Gram Panchayat by Division

% % Marginal % Agri % of BPL Division GPs Households Population SC/ST workers Workers Households Bangalore 32 1669 7859 31.17 10.41 15.97 73.47 Belgaum 32 1461 7935 18.68 10.97 16.22 41.97 Gulbarga 32 1538 8491 39.67 9.15 20.50 49.13 Mysore 32 1422 6622 34.22 10.01 15.27 61.88 Total 128 1522 7727 30.93 10.14 16.99 56.61 Category Forward 32 1393 6859 32.84 8.60 15.45 51.66 Backward 32 1533 7679 26.84 10.33 14.75 44.46 More Backward 32 1629 8455 28.94 10.51 17.95 79.86 Most Backward 32 1535 7913 35.11 11.11 19.81 50.48 Total 128 1522 7727 30.93 10.14 16.99 56.61 The net sown area is higher in Belgaum division while it is higher in most backward category. The net irrigated area is higher in forward and backward category than more backward and most backward categories.

Table 19 - Land use pattern of sample GPs across Divisions and Categories Average %Net % Net % Net % Net Area per sown irrigated Average sown irrigated Division GP (Ha) area area Category Area (Ha) area area Bangalore 3552 62 26 Forward 2778 55 40 Belgaum 3542 75 26 Backward 2603 64 41 Gulbarga 3989 61 42 More Backward 3292 62 27 Mysore 2231 60 30 Most Backward 4641 75 16 All 3329 64 31 All 3329 64 31 The wage rates across divisions and categories did not show any clear trend. The wages however, show a uniform trend across categories. The agricultural wages across male as well as female was higher in Gulbarga and Mysore division.

Table 20 - Wage rates of Agriculture and Non Agriculture labour in the sample GPs Agri labour Non Agri labour Agri labour Non Agri labour Division Male Female Male Female Category Male Female Male Female Bangalore 186 121 221 151 Forward 190 119 219 140 Belgaum 185 112 186 117 Backward 190 129 202 137 Gulbarga 194 130 222 145 More Backward 189 121 203 131 Mysore 194 129 214 136 Most Backward 190 123 216 140 All 190 123 210 137 All 190 123 210 137

Centre for Budget and Policy Studies Page 25

Understanding Determinants of Own Source Revenue

13. Analysis of Outliers The sample GPs includes outliers as there are GPs with good OSR (as compared to GPs in the same category / division) although they belong to backward category or divisions known to be less developed; and there are GPs with poor OSR performance (compared to GPs in the same category / division) despite being in forward category taluks and divisions.

Expectation OUTLIERS Forward Category Good OSR Poor OSR Backward Category Poor OSR Good OSR Bangalore and Mysore Division and Forward category Good OSR Poor OSR Gulbarga and Belgaum Divisions and backward category Poor OSR Good OSR In the secondary data analysis again there were similar outliers of good performing and poor performing GPs. From these outliers, 41 GPs which form part of our sample of 128 GPs have been identified. Of the 41 GPs, 25 are poor performing meaning their OSR performance is poor despite belonging to forward / developed category taluk; and 16 better performing GPs whose OSR performance is good in spite of being in backward taluk. For the purpose of determining the OSR performance, GPs falling within highest per capita OSR (more than Rs. 100) and lowest per capita OSR (less than Rs. 20) were considered to be the outliers. These were identified with the more significant variables like the proportion of SC Population, the proportion of BPL households in the GP, etc. To illustrate, GPs with a per capita OSR of more than Rs. 100 although belonging to the most backward category and /or having a BPL household concentration of more than 60% and/or with more than 40% of population belonging to Scheduled Caste (SC) are consider good performing GPs; on the other hand, GPs with a per capita OSR of less than Rs. 20 despite belonging to forward category and/or with BPL household concentration of less than 60% and/or SC population under 15% are considered poor performing GPs. The outliers thus identified have been analysed with reference to certain attributes, socio-economic characteristics and the capacity of tax administration in the GP collected through primary survey. It was found that the major proportion of OSR among the good performing GPs was from the sale or lease of GP properties (land / tank / manure / trees) while property and water taxes, mainstay of OSR, were significant in case of the poor performing GPs. What this shows is that these GPs which otherwise faced adverse circumstances improved their revenue mobilization by tapping non-traditional sources of revenue.

Centre for Budget and Policy Studies Page 26

Understanding Determinants of Own Source Revenue

Table 21 - Share of different components in OSR (in %) OSR components Good Performing Poor Performing Property tax 33 30 Electricity tax 5 7 Water tax 5 18 Entertainment tax 8 5 License fee 2 5 Other fee 6 9 Permanent Asset 6 11 Lease /sale/misc. 36 14 Total 100 100 An analysis of these good performing and poor performing GPs with other parameters such as literacy, GP members’ education, GP members’ experience and so on is presented below. It is seen that the average population of good performing GPs was higher by 50% compared to poor performing GPs. It is observed that good performing GPs were closer to the district and taluk headquarter as compared to poor performing GPs. They also had higher proportion of experienced GP members. However, the members’ education was higher among poor performing GPs. Literacy rate was not any different.

Table 22 - GP characteristics of good and poor performing GPs

Good Poor Description Performing Performing Average Population 9811 6324 No. of Villages 6 6 Literacy (%) 44 44 Members' Education (% above secondary education) 19 22 Members' Experience ( % more than once) 12 8 Population/Bill collector 4475 4678 Average distance to taluk HQ 20 22 Average distance to district HQ 47 54 The availability of various registers did show a difference between the two categories of outliers. The availability of registers was relatively higher in good performing GPs for 5 important registers. This availability reflects the tax administration, the information base and discussions at the GP meetings regarding the OSR collections.

Centre for Budget and Policy Studies Page 27

Understanding Determinants of Own Source Revenue

Table 23- Availability of Registers among good performing and poor performing GPs Good Poor Performing Performing N=16 N=25 Registers Number % Number % Tax assessment 10 63 18 72 Mutation 13 81 15 60 P.T. DCB 13 81 21 84 Vehicle tax 2 13 3 12 Advertisement tax 3 19 3 12 Water tax 14 88 20 80 Income generating assets 9 56 11 44 License fees 13 81 14 56 Entertainment 1 6 5 20 Cattle pound 2 13 5 20

14. Analysis of the complete sample The sample of 128 GPs was distributed in equal proportion between GPs with high OSR:Total Revenue and low OSR:Total Revenue, that is, 64 GPs each. As can be seen from the sampling plan discussed above, all GPs were first distributed by division and then under each division by category (Forward, Backward, etc.). The GPs were then sorted by OSR:TR and the top (good performing) and bottom (poor performing) were selected for the primary survey. The 128 sample GPs have been analysed by OSR and other variables such demographic characteristics, socio-economic attributes, capacity of elected representatives, capacity and state of tax administration, and so on. The analysis also presented division wise.

Proximity to state / national highway The closeness to highway was analysed. A distance of less than 10 km was considered to be close. Gulbarga division recorded the fewest GPs (59%) close to highway while 84% of GPs in Bangalore and Mysore division were close to highway. About 81% of the better performing GPs were close to highway while only 67% of the GPs of the poor performing GPs were close to a highway.

Centre for Budget and Policy Studies Page 28

Understanding Determinants of Own Source Revenue

Table 24 - Proximity to the Highway No. of GPs close to % Category highway/Total GPs Good performing GPs 52/64 81 Poor performing GPs 43/64 67 All 95/128 74 Division Bangalore 27/32 84 Belgaum 22/32 69 Gulbarga 19/32 59 Mysore 27/32 84 All 95/128 74 Similar analysis of proximity to taluk and district head quarters showed that the average distances were higher in Belgaum and Gulbarga division than Bangalore and Mysore divisions. It was seen that poor performing GPs were generally farther from district and taluk head quarter by 15 Km and 4 Km respectively. Table 25 - Average Distance of District Headquarter (HQ) and Taluk Headquarter Distance from Distance from Category District HQ (Km) Taluk HQ (Km) Good performing GPs 41 18 Poor performing GPs 56 22 All 49 20 Division Bangalore 44 19 Belgaum 55 23 Gulbarga 55 20 Mysore 41 18 All 49 20 Proportion of SC/ST population There was a significant difference in the proportion of SC/ST population between the two categories by nearly 20 percentage basis points. The proportion of SC/ST population was higher in Mysore division followed by Belgaum, Bangalore and Gulbarga divisions. As discussed proportion of SC/ST population is an indicator of poor development as these sections of society are characterized by poor asset ownership and income generating capacities. The data seems to bear this out as good performing GPs had lower proportion of SC/ST population as compared to poor performing GPs.

Table 26 - Proportion of SC/ST Population Category GPs (N=) SC ST % Good performing 58 23 Poor performing 58 42 All 116 30

Centre for Budget and Policy Studies Page 29

Understanding Determinants of Own Source Revenue

Division Bangalore 31 26.33 Belgaum 29 32.40 Gulbarga 28 22.11

Mysore 28 40.21 All 116 29.77

Literacy Rate

An analysis of literacy rate, another proxy indicator for development, showed that it was higher among good performing GPs for both male and female populations. The literacy percentage was highest in Belgaum division followed by Bangalore, Gulbarga and Mysore division. The availability of data on literacy was more in divisions of Bangalore and Belgaum while it was lowest in Gulbarga with only 18 GPs being able to make the literacy data available.

Table 27 - Literacy % in the sample GPs by performer category and Division Literacy % Literacy % Category GPs (N=) Male Female Better performer 52 54 45 Poor performer 51 49 36 All 103 52 42

Division GPs Male Female Total Bangalore 31 49 41 45 Belgaum 31 68 53 61 Gulbarga 18 51 35 44

Mysore 23 43 37 40 All 103 54 43 48

The variables like the closeness to highway, distances to District and Taluk headquarter, literacy, proportion of SC/ST population distinguished the good performing GPs and poor performing GPs. However, the other variables like the frequencies of buses, crops grown, as well as the primary occupation in the GP did not show significant differences between the performer categories.

Capacity of Elected Members It can be reasonably assumed that OSR depends upon the capacity of the elected representatives as they take the crucial decisions in respect to mobilization of own revenue. Accordingly, the elected members’ experience, their socio-economic status and education were analysed. The per capita OSR increased with the increased share of re-elected members up to 40% and decreased thereafter. This indicates that the GPs with an optimum combination of fresh and re elected members would help the GPs to improve the OSR collections. The highest average OSR per GP was Rs 21 lakh which had reelected members in the range of 20 to 30%. Centre for Budget and Policy Studies Page 30

Understanding Determinants of Own Source Revenue

Table 28- Proportion of experienced GP members in relation to OSR

% of members elected more than once GPs Average OSR Per capita OSR 0-10 70 1021660 132.65 10-20 25 895354 115.53 20-30 21 2118105 281.07 30-40 7 1759543 215.25 40-50 2 752328 109.87 Grand Total 125 1217613 158.20 Similarly the share of members belonging to SC/ST in the GP was also analysed. GPs with SC/ST members up to 30% of the total members were found to be highest in terms of average OSR as well as per capita OSR.

Table 29 - Proportion of SC/ST GP members in relation to OSR in Sample GPs Average % SC/ST GP s OSR Per capita OSR 0-30 49 1896625 223.92 30-60 55 904174 118.92 60-90 21 454167 74.01 All 125 1217613 158.20 The members’ educational qualification was correlated against the OSR of the GPs. It was found that the average OSR as well as the per capita OSR was found to be highest in the GPs with higher share of the educated members. The education of members has a significant positive relation with the OSR collections in the GP.

Table 30 - Proportion of SC/ST GP members in relation to OSR sample GPs Average Per capita % members above secondary education GPs OSR OSR 0-20 65 828133 110.71 20-40 47 1450259 184.01 >40 13 2323914 286.55

Tax administration

It seems obvious that capacity and state of tax administration would critically determine the level of OSR. The number of bill collectors, their capacity, maintenance of tax records in proper order would affect the mobilization of own revenue. The role of bill collectors is particularly very important in the tax collection. The average as well as the per capita OSR was highest for GPs with at least one bill collector for 3000 population. It was also observed that that only 26 out of 124 GPs have this optimum ratio of bill collectors to the population. About half the sample GPs (64) have one bill collector for a population ranging between 3000 and 6000.

Centre for Budget and Policy Studies Page 31

Understanding Determinants of Own Source Revenue

Table 31 - Population per bill collector in relation to OSR sample GPs Population/bill collector GPs Average OSR Per capita Up to 3000 26 2463251 355.51 3000-6000 64 975082 135.75 > 6000 34 798859 84.35 All 124 1238798 159.70 The other important aspect of tax administration is the maintenance and continuous updating of the records related to OSR. There are about 10 registers to be maintained by the GP which support the OSR collections. These registers were examined for their availability and completeness. These aspects of the registers were examined under divisions as well as categories. However there was trend across divisions with Bangalore and Mysore divisions leading in respect of availability of registers followed by Belgaum and Gulbarga divisions.

Table 32 - Availability of important registers of GPs across divisions (in %).

Tax Property Water Advt. License Entertainment Division Assessment Mutation tax DCB tax DCB tax fees tax Bangalore 83 72 89 96 7 96 0 Belgaum 84 72 84 91 16 63 9 Gulbarga 72 57 68 71 5 60 7 Mysore 77 90 93 94 38 86 25 All 79 73 84 88 17 76 11 The availability of registers of entertainment and advertisement tax was higher in Mysore divisions which points to the existence of entertainment, exhibitions and advertisements in the GPs. The coastal Karnataka which have higher service sector share; and Belgaum and Mysore divisions appear to have a higher share of advertisement taxes.

Table 33 - Updating of important registers (up to year 2011-12) (in %).

Water Tax Property tax Advt. License Entertainment Division Assessment Mutation tax DCB DCB tax fees tax Bangalore 62 59 75 79 4 85 0 Belgaum 41 34 35 42 9 32 6 Gulbarga 57 43 43 50 0 48 6 Mysore 57 61 67 66 29 70 14 All 54 49 55 59 11 58 6 The updating to the current year was highest in GPs of Bangalore division followed by Mysore, Gulbarga and Belgaum divisions. Similarly, completeness of the registers was also found to be higher in Bangalore division as compared to other divisions.

Centre for Budget and Policy Studies Page 32

Understanding Determinants of Own Source Revenue

Table 34 - Completeness of important registers in % of GPs across divisions

Water Tax Property tax Advt. License Entertainment Division Assessment Mutation tax DCB DCB tax fees tax Bangalore 83 76 89 93 8 93 0 Belgaum 81 69 78 84 16 59 6 Gulbarga 64 54 67 70 0 55 7 Mysore 71 73 81 83 18 79 0 All 75 68 79 83 11 72 3 The availability of the registers were also checked against the good and poor performing GPs The availability of registers was highest for water tax followed by property tax register, license fees and tax assessment registers.

Table 35 - Availability of registers across performer categories of GPs Category Good performing Poor performing % % GPs No. of GPs availability No. of GPs availability Tax assessment register 61 82 60 77 Mutation Register 60 85 60 62 Property tax DCB 59 86 59 81 Vehicle tax register 55 13 55 15 Advertisement tax register 54 20 55 15 Water tax register 60 92 59 85 Income generating asset register 57 72 60 43 License fees register 55 85 58 67 Entertainment tax register 50 6 50 16 Cattle pound register 50 8 51 18 The availability of registers was higher among the good performing GPs than the poor performing GPs. The availability of the vehicle tax register, entertainment tax register and cattle pound register was higher among the poor performing GPs. The existence of registers relating to charges for local fair, cattle fairs, etc. among the poor performing GPs indicates the nature of economic activity in the GPs. The difference in the availability of registers like the income generating asset register, license fees register and mutation register is very pronounced between the performer categories. The availability of tax data for latest years on various components of OSR was sought through the questionnaire administered during the data collection.

Table 36- Availability of tax data for the year 2007-08 to 2010-11 Category GPs Available % Better performer 64 46 72 Poor performer 64 31 48 All 128 77 60 The data revealed that there is a gap in the process of keeping as well as using the tax information in the GP discussions as well as decision making. The GPs of better performance had comparatively better data availability.

Centre for Budget and Policy Studies Page 33

Understanding Determinants of Own Source Revenue

Similarly the data with respect to the changes in the number of properties and tax rates over the 4 year period was sought through the questionnaire. The information on the availability of properties by categories (RCC, tiles, mud, hut etc) was less than 50% in the entire sample. Again the good performing GPs had a little higher level of data availability with respect to tax rates and number of properties. The changes in the tax rates were seen only in 2 to 3 cases while the rest were increase in the number of properties. Few GPs did not show any increase in the number of properties.

Table 37 - Changes in the (tax rates and number of properties) for the year 2007-11 Category GPs Available % Better performer 64 34 53 Poor performer 64 23 36 All 128 57 45 The availability of the Demand, Collection and Balance (DCB) register was sought for 2 consecutive years. The information again showed the non availability of data to the extent of 38%, while the information available was significantly higher under good performing GPs than the poor performing GPs.

Table 38- Availability of DCB data for the year 2009-10 to 2010-11 Category GPs Available % Better performer 64 51 80 Poor performer 64 28 44 All 128 79 62

The availability of the latest year of audit was also one of data collected through the questionnaire. However there was no data with respect of 25 GPs. The availability of latest year of audit was higher under better performing GPs than that of the poor performing ones.

Table 39 - Availability of latest year of Audit as 2010-11 Category GPs Available % Better performer 49 24 49 Poor performer 54 16 30 All 103 40 38 Interview with GP Members

The members of the sample GPs were interviewed in a group (4-5 members including president, vice president, a women member) and were asked to express their views about various aspects of OSR as a part of the primary data collection. Around 10-12 questions framed around various aspects of OSR were posed to the group and the answers were elicited. The field investigators were asked to consider the various views expressed and determine whether the members on the whole were in agreement or disagreement with the statement. Option for neither an agreement nor a disagreement was also considered. For every question the answer would correspond to a GP. The results of the interviews indicated interesting responses from among the members of the panchayats.

a. With respect to the issue of OSR to be used for development purposes rather than for salaries/electricity bills, there was a high level of agreement among panchayats reflecting the need to provide greater incentives for collect own revenue.

Centre for Budget and Policy Studies Page 34

Understanding Determinants of Own Source Revenue

b. Similarly there was a high degree of agreement among all panchayats that the possibility of higher OSR collection was greater when there was direct benefit accruing to the people from the taxes collected.

c. Regarding OSR being related to economic activity, the members of good performing GPs agreed to a much lesser extent compared to the poor performing GP members. Although level and diversity of OSR are dependent on the economic activity, it is the optimism and motivation of members to mobilize revenues to the best possible extent that actually sets apart the good performing GPs from the poor performing GPs.

d. Regarding GP not being considered a legitimate government, there was a higher level of disagreement in good performing GPs as compared to the poor performing GPs indicating that the former are more confident of their own constitutional status and powers.

e. As for the reluctance of GPs to increase the taxes there was an equal level of agreement among both good and poor performing GPs.

f. The good performing GPs did not agree that GPs lacked capacity to collect OSR, while poor performing GPs seemed to believe so.

g. With respect to the issue of lack of awareness of GP members and officials about the potential of OSR, there was a stronger disagreement from the good performing GPs than the poor performing ones.

h. Again greater number of good performing GPs did not think increasing taxes was politically risky and therefore they were reluctant to increase them. On the other hand more number of poor performing GPs seemed to think so.

i&j Greater number of poor performing GPs agreed that implementing the schemes and programmes resulted in lesser time being available for mobilizing Own Source Revenues. They also seemed to prefer receiving state and central grants instead of rising own source revenues; whereas, a majority of good performing GPs did not think so. The panchayats members’ perception about various issues is quite revealing in that the members of good performing GPs seem to be more confident and optimistic than those of poor performing GPs. This underlines a need for building capacity of panchayat members to think more positively.

Apart from these structured questions, there were two open ended questions that were posed to the GP members. They were asked to identify important factors for improving the OSR collection and the strategies for achieving the same based on their own their experiences in the GP. Answers have been broadly related to effective utilisation of potential sources as well as an efficient tax administration.

Exploit the potential sources effectively a. Use of GP spaces for construction of commercial buildings, storage facilities, and other amenities that attracts rent; b. Auction of tanks; c. Revision of rents for commercial buildings, markets, open spaces regularly;

Centre for Budget and Policy Studies Page 35

Understanding Determinants of Own Source Revenue

d. Issuing of the licenses for all the trades, mobile towers, etc; and e. Making use of grants effectively to create income generating assets. Effective Tax administration a. Collection of tax made prerequisite for many other things like water connection, licenses, fees, various certificates, etc.; b. Water connection be effectively linked with the property tax (3 GPs linked the ration with the tax – defaulters were asked to pay tax before getting the ration); c. Giving notices, drum beating in front of houses of non payers, tax collection drives, etc.; d. Fixing targets for bill collectors for timely and effective collection; e. Members persuading the people and overseeing the tax collection drive; f. Discussion in grama sabhas, bringing awareness about the tax collection, transparency in tax collection; and g. Updation of tax registers, periodical increases in the tax rates, and transparency in collection and making people aware of its use. Focus Group Discussion

Apart from the interview with the members of GP, focus group discussions (FGD) with select villagers were also conducted to assess the knowledge about the different taxes/fees payable to GP, strategies or good practices for better OSR collection, problems or issues with respect of OSR collection and measures that GP and citizens can take to improve the OSR collections in the GP. The answers obtained from the FGD are discussed below. There is a good amount of awareness among the people of GP with respect to the taxes to be paid to the GP. About 92 percent of the GPs reported the awareness in the collection of property tax. Same is the case with the water charges. However, the collection of electricity tax (Rs. 10 per household) is not much heard of by the people. Surprisingly Gulbarga and Belgaum divisions have higher awareness with respect to property tax, water charges and electricity tax. There is higher awareness among people of Bangalore and the Mysore divisions about license fees, market fees and other fees to be paid to the GP, which may be attributed to the economic development of the region. Participants laid greater emphasis on tax collection efforts rather than increasing the tax rates or expanding the tax base. They felt that tax collection drives, issuing of notices, creating awareness, publishing the list of non payers, etc. would have an impact on increasing tax collection. Participants attributed problems with low OSR to poor collection effort rather than low tax rates. According to them, lack of awareness and basic amenities were main reasons for poor tax collection. The lower tax collection was also attributed to lack of political will on part of GP members. Regarding the issues of what GP can do to improve OSR collections, the discussion touched upon both the issues of exploiting the potential sources effectively as well as efficient tax administration. Some of the measures suggested included - building commercial complexes,

Centre for Budget and Policy Studies Page 36

Understanding Determinants of Own Source Revenue

tank and cattle field auctions, revision of tax rates, improving tax collection and increasing transparency in tax administration. With respect to the role of people to improve OSR, it was felt that they should pay taxes regularly as well as persuade others to do so by increasing awareness and discussing it in gram sabha.

Field Observations

Apart from these FGDs the field investigators also have observed and documented issues related to OSR. The absence of the data speaks much of it. Many GP could not provide general information such as population, literacy rates and area accurately; they were also not able to furnish related records. The absence of PDO / secretary is a serious issue for data management. It was observed that in many places, bill collectors were not paid regularly and not paid the stipulated amount especially in Gulbarga division. One GP had not paid the bill collector for about 18 months. The audit reports also highlight that the tax payments are often diverted by the bill collectors and remitted to the bank accounts at a later date. The stipulation that the salary bill of the GP should not exceed 40% of the own revenue and general grants together has deterred GPS from engaging more bill collectors adversely affecting OSR mobilization. This has also resulted in a few GPs paying less than stipulated minimum amount to their employees. This has resulted in a vicious circle of low OSR resulting in lower and untimely wages which in turn reduce the efficiency of tax administration resulting in poor OSR collection. The issue of the arrears of electricity bills is a matter of concern. Large portion of the own revenue is being consumed by the electricity bills. GPs are not willing to pay the arrears of electric bill resulting in overdue amounts and interest for the same. The field investigation also noted that some people who are willing to pay do not have clear property titles. Few others who have titles are yet to come to terms with paying property taxes which they had not been doing for generations. All of the new constructions abide by the rules of the GP in payment of taxes. It appears that property document describing the property, its dimensions and so on, particularly for old properties, is essential for enabling GPs to levy and collect taxes on them. There is recognition of the need to pay water tax especially in the water scarce regions as people have clearly understood the importance of regular water tax payment for adequate water supply. Any delay would affect the repairs needed for the water supply systems in the GP. The GP members are unable to justify much less defend tax increases in the absence of data relating to application of OSR. The potential of other sources of OSR such as trade licenses, building licenses, etc. are yet to be realized in many GPs. The cable operators, the mobile towers installations, flour mills, taxes on advertisements/bill boards and many such businesses are not brought under tax net in the absence of clear guidelines in their respect. There is no effective supervision on the GPs regarding the implementation of new tax rates, coverage, collection efforts, etc. unlike the implementation of various schemes The lack of records pertaining to OSR is a result of the lower focus on the tax administration. General public felt that the availability of trained accountants who would keep the accounts properly as well as

Centre for Budget and Policy Studies Page 37

Understanding Determinants of Own Source Revenue

be available for the people to pay taxes at the office would certainly improve the tax collections. This would also help the GP to maintain the records in the GP offices properly and make available the necessary information for the decision making.

15. Conclusions and Recommendations There have been several attempts to identify the determinants of Own Source Revenue of GPs. Most of them have clearly identified a relationship of OSR with economic development. The present study has gone beyond testing OSR with various indicators of development to identifying critical underlying factors such as the capacity and attitude of elected representatives; the state of tax administration in terms of human resources and record management; the attitude of citizens towards local taxes at large. The secondary data analysis and the analysis of outliers confirmed the now generally held position that economic development plays an important part in a GP’s ability to rise own source revenues. Thus, it was seen that population, proportion of the SC/ST, proportion of BPL households and proportion of marginal workers significantly influence OSR collections. It was, however, observed that of all the factors economic development was fundamental. Tax administration has emerged as central to effective and efficient tax collection. Availability of adequate number of bill collectors, updating and maintenance of registers pertaining to tax administration clearly distinguished good performing GPs from the poor performing GPs. Restricting payment of salaries to 40% of Own revenue has become counterproductive with low level of human resources acting as an impediment to efficient and effective tax administration. Interviews with GP members reflect clear differences in the opinion and attitude of the members of good performing and poor performing GPs. It was quite clearly evident that capacity of elected representatives was critical for OSR mobilization with members of good performing GPs showing a distinctly positive attitude and also being more literate, experienced and educated. Focus Group Discussion with select members of general public showed awareness among them about the need for OSR. There is a favorable attitude towards local taxes and local government which needs to be channelized and strengthened though tangible benefits accruing to local population from the taxes that they pay. The powers to decide on tax rates and tax bases (license fees for various trades, advertisement tax and user charges for various certificates) should be delegated to the Gram Panchayats or at the least to Taluk Panchayats. Taluk panchayats may be authorized standardize tax base and rates for the GPs. This would help GPs to concentrate on tax collection without having to fear the disapproval of local population. A periodical revision of rates by the TP would also implicitly provide for periodical supervision of the record management at GP level, data quality and the OSR collection efforts. ______

Centre for Budget and Policy Studies Page 38

Understanding Determinants of Own Source Revenue

Annex A

Categorization of Taluks as per Nanjundappa Committee Report

The state of Karnataka was formed on November 1, 1956 following the reorganization of the States of the Indian Union on linguistic basis. Eight districts of the erstwhile Mysore State, four districts from the Bombay-Karnataka area, three districts from the Hyderabad-Karnataka area, and two districts from the Madras-Karnataka area along with the Coorg region constituted this new state. However, these regions were at different stages of development with Mysore region being the most prosperous while other regions were less developed having been treated as the ‘periphery’ by pre-independence Presidency States. This resulted in a North- South divide, which is evident across different periods of time in regional variations in per capita incomes, leading to great resentment in North Karnataka. As one of the measures in response to this, the state government in October 2000 appointed the High Power Committee for Redressal of Regional Imbalances under the chairmanship of Dr. D M Nandjunappa to study ‘the disparities in the level of development from district to district and from region to region and also between South Karnataka and North Karnataka, and recommend appropriate strategy for development so as to minimize inter-district and inter- regional disparities and also suggest appropriate institutional mechanism for implementing the strategy for moving towards balanced development.’ The Committee developed indicators for measuring development, in order to identify regional disparities and backwardness at the taluka level, known as the Comprehensive Composite Development Index (CCDI). Using five sectors viz. agriculture and allied, industrial trade and finance, economic infrastructure, social infrastructure, and population characteristics; and a total of thirty-five indicators under these sectors, they assigned precise weights to each indicator and created sector-wise indices for 175 talukas. These sectoral indices were then aggregated into a CCDI by utilizing the shares of these sectors in the State Domestic Product (social infrastructure was given an additional weightage of 10 per cent). The list of indicators under each sector is as follows- I. Agricultural and allied

A1: Percentage of total cropped area to net area sown A2: Percentage of area under food grains to total cropped area A3: Percentage of area under horticultural crops to total cropped area A4: Percentage of area under commercial crops to total cropped area A5: Percentage of net area irrigated to net are sown A6: Fertilizer (NPK) consumption in kilograms per hectare (total cropped area)

Centre for Budget and Policy Studies Page 39

Understanding Determinants of Own Source Revenue

A7: Number of tractors per lakh rural population A8: Livestock units per lakh rural population A9: Per capita bank credit (commercial and regional rural banks) to agriculture (in rupees) II. Industry, Trade and Finance

I1: Number of industrial units per lakh population I2: Percentage of industrial workers to total workers I3: Per capita development credit by banks. I4: Number of bank branches per lakh population I5: Number of enterprises engaged in trade, hotels and transport per lakh population III. Infrastructure (economic)

E1: Number of post offices per lakh population E2: Number of telephones per lakh population E3: Road length in kilometers per 100 square kilometers E4: Proportion of villages having access to all weather roads(in percentage) E5: Railway track in kilometers per 1000 square kilometers E6: Number of motor vehicles per lakh population E7: No of co-operative credit societies (agri. & non-agriculture) per lakh population E8: Proportion of electrified villages and hamlets to total villages and hamlets. E9: Number of regulated markets and sub-markets (equivalent regulated markets) per lakh population IV. Infrastructure (social)

S1: Number of doctors (govt. & private) per 10,000 population S2: Number of government hospital beds per 10,000 population S3: Literacy rate (in percentage) S4: Pupil-teacher ratio (1st to 10th standard) S5: Percentage of children out of school in the age group 6 - 14 years S6: Number of students enrolled in government and aided first grade degree colleges per lakh population S7: Percentage of habitations having drinking water facility of 40 or more LPCD 164

Centre for Budget and Policy Studies Page 40

Understanding Determinants of Own Source Revenue

V. Population Characteristics

P1: Sex ratio P2: Percentage of urban population to total population P3: Percentage of SC & and ST population to total population P4: Percentage of non-agricultural workers to total workers P5: Percentage of agricultural labourers to total workers Assuming that the State average was indicated by an index of ‘1’; they were able to identify 114 talukas (65 per cent) as ‘Backward Talukas’ whose CCDI values were less than 1. They further sub- divided these talukas on the basis of CCDI values into Backward talukas (0.88 < CCDI < 1); More Backward talukas (0.79 < CCDI < 0.89); and Most Backward Talukas (0.52 < CCDI < 0.80). As a result, 35 talukas were classified as Bakward, 40 as More Backward, and 39 as Most Backward. The following table shows a division-wise break- up of the 114 talukas-

Divisions Most More Backward Total Backward Backward

Gulbarga 21 5 2 28

Belgaum 5 12 14 31

Bangalore 11 13 9 33

Mysore 2 10 10 22

Total 39 40 35 114

Centre for Budget and Policy Studies Page 41

Understanding Determinants of Own Source Revenue

Annex B

Division-wise District-wise sample of Gram panchayats

% share Gram Panchayat of OSR Division District Taluk Category Name in Total Revenue Most Bagalkote Bilgi Sonna 3 BGM Backward More Belgaum Athni Ugar K H 25 BGM Backward More Belgaum Athni Aralihatti 2 BGM Backward BGM Belgaum Belgaum Hindalga Forward 38 BGM Belgaum Belgaum Handiganur Forward 26 BGM Belgaum Belgaum Nilaji Forward 24 BGM Belgaum Belgaum Belgundhi Forward 22 BGM Belgaum Chikodi Umarani Forward 1 BGM Belgaum Gokak Shiltibhavi Forward 2 More Belgaum Parasgad Yaragatti 31 BGM Backward More Belgaum Parasgad Munavalli 26 BGM Backward BGM Belgaum Ramdurg Nandhihal Backward 2 BGM Belgaum Ramdurg Hosakeri Backward 1 BGM Belgaum Raybag Alaknoor Backward 0 BGM Belgaum Sampgaon Belavadi Backward 26 BGM Belgaum Sampgaon Chikkabagewadi Backward 26 BGM Belgaum Sampgaon Kittur Backward 24 Most Bijapur Basavana Bagevadi Managoli 16 BGM Backward Most Bijapur Basavana Bagevadi Mulawad 12 BGM Backward Most Bijapur Basavana Bagevadi Yaranal 10 BGM Backward Most BGM Bijapur Basavana Bagevadi Chimmalagi 2 Backward Most Bijapur Indi Chadachan 23 BGM Backward Most Bijapur Indi Miragi 2 BGM Backward Most Bijapur Indi Jigajivani 2 BGM Backward BGM Dharwar Dharwad Kadabagatti Forward 2 BGM Dharwar Dharwad Benachi Forward 2 More Dharwar Kalghatgi Gambyapur 3 BGM Backward More Dharwar Kalghatgi Belavantar 2 BGM Backward More Dharwar Kalghatgi Guddadahulikati 2 BGM Backward

Centre for Budget and Policy Studies Page 42

Understanding Determinants of Own Source Revenue

BGM Haveri Haveri Agadi Backward 29 Uttara More Bhatkal Mavalli 29 BGM Kannada Backward Uttara Siddapur Itgi Backward 1 BGM Kannada Bangalore Anekal Bommasandra Backward 78 BLR Urban Bangalore Anekal Jigani Backward 75 BLR Urban Bangalore Anekal Hebbagodi Backward 72 BLR Urban Bangalore Anekal Neraluru Backward 69 BLR Urban Bangalore Bangalore East Seegehalli Forward 78 BLR Urban Bangalore Bangalore South Doddathoguru Forward 75 BLR Urban Bangalore Bangalore South Konappanaagrahara Forward 72 BLR Urban Bangalore Bangalore South Kumbalagodu Forward 71 BLR Urban BLR Chik Ballapur Chintamani Kotagal Backward 3 BLR Chik Ballapur Chintamani Chilakalanerpu Backward 3 BLR Chik Ballapur Chintamani Moodlagollahalli Backward 2 More Chik Ballapur Gauribidanur Manchenahalli 26 BLR Backward BLR Chitradurga Chitradurga Alagavadi Forward 2 BLR Chitradurga Chitradurga Iyyanahalli Forward 2 BLR Chitradurga Chitradurga Madanayakanahalli Forward 2 More Chitradurga Hiriyur M.d.kote 1 BLR Backward More Chitradurga Hiriyur Yelladakere 1 BLR Backward More Chitradurga Hiriyur Gowdanahally 1 BLR Backward More Chitradurga Holalkere N.g.halli 1 BLR Backward Most Chitradurga Hosadurga Sanihalli 2 BLR Backward Most Chitradurga Hosadurga Lakkihalli 1 BLR Backward Most Davanagere Channagiri Siddanamatha 2 BLR Backward BLR Davanagere Davanagere Kanagondanahalli Forward 2 Most Kolar Bagepalli Ghantamvaripalli 30 BLR Backward Most Kolar Bagepalli Chelur 24 BLR Backward BLR Kolar Srinivaspur Lakshmipura Backward 3 Most Ramanagaram Kanakapura Harohalli 47 BLR Backward

Centre for Budget and Policy Studies Page 43

Understanding Determinants of Own Source Revenue

Most Ramanagaram Magadi Kudur 37 BLR Backward More Tumkur Chiknayakanhalli Huliyur 23 BLR Backward More Tumkur Koratagere Akkirampura 27 BLR Backward Most Tumkur Pavagada Budibetta 1 BLR Backward More Tumkur Turuvekere Ammasandra 25 BLR Backward GBR Bellary Bellary Moka Forward 43 GBR Bellary Bellary Halakundi Forward 31 GBR Bellary Bellary Karekal Forward 3 More Bellary Hadagalli Sovenahalli 2 GBR Backward More Bellary Hadagalli Kalvi 2 GBR Backward More Bellary Hadagalli Hiremallanakeri 2 GBR Backward More Bellary Hagaribommanahalli Chintrapalli 29 GBR Backward More Bellary Hagaribommanahalli Hagaribammanahalli 23 GBR Backward GBR Bellary Hospet Hampi Forward 23 GBR Bellary Hospet 114.danapura Forward 21 More GBR Bellary Siruguppa Kuruvalli 1 Backward GBR Bidar Bidar Sirsi (a) Forward 2 GBR Bidar Bidar Malkapur Forward 1 GBR Bidar Bidar Yadlapur Forward 1 Most Gulbarga Afzalpur Devalagangapur 24 GBR Backward Most Gulbarga Shorapur Hunasagi 20 GBR Backward GBR Koppal Gangawati Karatagi Backward 44 GBR Koppal Gangawati Sriramnagar Backward 24 GBR Koppal Gangawati Marali Backward 19 GBR Koppal Gangawati Hosakera Backward 17 GBR Koppal Gangawati Musalapur Backward 5 GBR Koppal Gangawati Sulekal Backward 4 GBR Koppal Gangawati Karadona Backward 2 GBR Koppal Gangawati Gouripur Backward 1 More Koppal Koppal Bhagyanagar 56 GBR Backward More Koppal Koppal Ginigera 31 GBR Backward Most Koppal Kushtagi Tavaragera 18 GBR Backward Most Koppal Yelbarga Kukanoor 26 GBR Backward Most GBR Raichur Devadurga Hirebudur 1 Backward

Centre for Budget and Policy Studies Page 44

Understanding Determinants of Own Source Revenue

Most Raichur Devadurga Nagadadinni 1 GBR Backward Most Raichur Manvi Aroli 1 GBR Backward Most Raichur Manvi Navalakal 0 GBR Backward Chamaraja Most Chamaraja Nagara Madapura 20 MSR Nagara Backward Chamaraja Most Chamaraja Nagara Hebbasur 2 MSR Nagara Backward Chamaraja Most Chamaraja Nagara Punajanuru 1 MSR Nagara Backward Chamaraja Most Chamaraja Nagara Amachavadi 1 MSR Nagara Backward Chamaraja More Kollegal Mulluru 2 MSR Nagara Backward Chamaraja More Kollegal Dhinnalli 2 MSR Nagara Backward Chamaraja More Kollegal Ponnachi 2 MSR Nagara Backward Chamaraja More Kollegal M.m Hills 2 MSR Nagara Backward Chamaraja Yelandur Gowdahalli Forward 2 MSR Nagara Chamaraja Yelandur Duggatti Forward 1 MSR Nagara Chamaraja Yelandur Yeragamballi Forward 1 MSR Nagara Chamaraja Yelandur Madduru Forward 1 MSR Nagara MSR Hassan Arsikere Yadavanahalli Backward 4 MSR Hassan Arsikere Kalyadi Backward 3 MSR Hassan Channarayapatna Navile Backward 4 MSR Kodagu Virajpet Gonikoppa Forward 52 More Mandya Krishnarajpet Kikkeri 30 MSR Backward MSR Mandya Maddur Koppa Backward 37 MSR Mandya Maddur Annuru Backward 36 More Mandya Malavalli Sarguru 30 MSR Backward MSR Mandya Pandavapura Chinakurali Backward 49 MSR Mandya Pandavapura Honganahalli Backward 34 Most Mysore Heggadadevankote N.belthur 22 MSR Backward Most Mysore Heggadadevankote Kanchamalli 16 MSR Backward Most Mysore Heggadadevankote Hyrige 9 MSR Backward Most Mysore Heggadadevankote Hirehalli 2 MSR Backward MSR Mysore Krishnarajanagara Munjanahally Backward 3 MSR Mysore Mysore Hinkal Forward 52

Centre for Budget and Policy Studies Page 45

Understanding Determinants of Own Source Revenue

MSR Mysore Mysore Koorgalli Forward 50 MSR Mysore Mysore Belawadi Forward 48 More Mysore Nanjangud Thandavapura 40 MSR Backward More Mysore TirumakudalNarsipur Hemmige 40 MSR Backward

Centre for Budget and Policy Studies Page 46

Understanding Determinants of Own Source Revenue

Annex C

Sources of Revenue and Expenditure responsibilities of Gram Panchayats

Gram Panchayats in Karnataka may raise funds in various ways. A major part of their revenue is generated through tax collection. They also earn revenue through sale of certain items, leasing out property, collecting donations from the public etc. Own source revenue of the Panchayats is broadly classified into: Tax revenue and Non-tax Revenue.

Tax and Non taxes (Own Source Revenue): a. Taxes: The Panchayats are empowered to levy tax and the revenue earned by them byway of tax imposition forms part of their own source revenue. Taxes levied by the Gram Panchayats (GP). i. Property tax including land tax and house tax. ii. Electricity charges. iii. Water tax refers the general water tax and special water tax collected from the Individual house holds who gets individual drinking water house pipe line connection etc. iv. Entertainment other cinematography, tax on vehicle other than motor vehicles and advertisement tax. b. Non Tax: Non-tax revenue is the part of the Gram Panchayath’s own revenue earned through sources other than tax. i. License fees: a levy of fee for sanctioning of house plan, fees charged for issue of trade registration fees and vehicle registration fees. ii. Other fee: Jatra fees, development charges from private layout, notice fees, warrant fees, fines, market fees slaughter house, mutton stall and chicken stall fees, bus stand fees, cart stand fees. iii. Income from permanent assets like rent from the land and buildings iv. Local cess, sale of manure, sale of land, income from lease of properties like ponds, pounds, and other miscellaneous.

OtherReceipts: i. Statutory Grants under Section 206 of PRI ACT 1993: Every Gram Panchayats receives maintenance grant (Section 206) or discretionary grant (208) under the provision of the Karnataka Panchayat Raj Act 1993from the Government. On receipt of release order from government, the secretary of the Gram Panchayat shall prepare a grant in aid bill in payee’s receipt as prescribed under article 24 ( KFC Form3) of the Karnataka Financial code and send it to the concerned countersigning authority who is designated to countersuing the bills in the grant release orders of the treasury for payment.

Centre for Budget and Policy Studies Page 47

Understanding Determinants of Own Source Revenue

The proceeds of the bills shall be credited within next day by the secretary to the Gram Panchayt fund opened and maintained in the Treasury/Bank. ii. Developmental Grants: It is basically a lump sum amount received by the panchayats from the government and can be used by the panchayats for developmental purpose. iii. 11th/12th Finance Commission Fund: The Union and State Finance Commissions devolve funds to the gram panchayats for provision of basic civic services, purpose of remunerative assets and infrastructure development programmes Receipts for implementation of Centrally Sponsored Schemes and State Plan Schemes: Nirmal Karnataka: State government has given top priority to develop environmental Mini Water Supply: S.G.RY : SampoornaGrameenRozgarYojana (SGRY) SwachaGramaYojane: MalleNeeruKoilo: (rain water harvesting): Library: Ambedkar housing scheme: VanaSamvadhana (afforestattion): Gram Swaraj: Suvarna Gram Yojane: Drinking water maintenance: Employment Guarantee (NREGS): Total Sanitation: Swajaladara : Watershed Development: Ground Water Development: Continuing Education: Hariyali Swarnajayanthi Gram SamriddhiYojana (SGSY): PMGY: PradhanMantriGramodayaYojana (PMGY): Bio Gas: JalNirmal: JalaRakshane: BharathNirman: Affected by Epidemic diseases: Affected by Natural calamities:

Centre for Budget and Policy Studies Page 48

Understanding Determinants of Own Source Revenue

Expenditure a. Untied expenditure i. General Administration: It refers to the expenses incurred towards paying the honorarium and also sitting fee of president, vice-president and other elected members of the panchayat. The other expenses that are incurred under this head of account are; Meeting expenses, Expenses on Grama Sabha Further, the salary of Bill Collector, Watermen etc., Travelling Allowances, Postage and Telephone charges, Stationary and printing, Furniture and Other Miscellaneous Expenses. ii. Public Protection: Public protection includes the maintenance of streetlights in all villages in the GP area. iii. Development Works carried out by GP : This mainly includes the expenditure incurred towards maintenance of drinking water supply, rural sanitation, Construction & maintenance of Roads, buildings etc. Under drinking water and rural sanitation, the GP mostly take up the maintenance – like repairs of motors for pumping of water from borewells, cleaning of drainages etc. iv. Public Health: This sector includes like prevention of spread of communal diseases, Prevention and remedial measures against epidemics etc. v. Civic Amenities : This mainly includes establishment and maintenance of village libraries and reading rooms, Construction and maintenance of community assets and Development and maintenance of public parks, playgrounds and so on vi. Education : here data present expenditure for education to socially disadvantage groups of the societies for example school scholar ship to students and supply of school materials etc., vii. Advances: GP received advances for from contractor to take up development work through tendering. b. Tied expenditure The tied expenditure is incurred for a specific purpose; the list of expenditure made by comes under respective schemes is given above.

Centre for Budget and Policy Studies Page 49

Understanding Determinants of Own Source Revenue

Annex D

Instruments designed to collect data from GPs

Questionnaire Study on Determinants of Own Source Revenue

Gram Panchayat Schedule No .

Instructions: Please fill in this data before visiting the Gram Panchayat

IDENTIFICATION SECTION:

Sr. No. Coding Category Codes

1 Name of the Division ______

2 Name of the District______

3 Name of the Taluk Panchayat ______

4 Category of the Taluk Panchayat ______

5 Name of the Gram Panchayat/ Ward______

6 No. of villages in the Gram Panchayat______

INTERVIEW DETAILS:

Date of interview d d m m y Y

Name of the interviewer

SUPERVISOR (to be filled by interviewer) EDITOR(to be filled by editor)

Name Name

Date d d m m Y y Date d d m m y Y

Centre for Budget and Policy Studies Page 50

Understanding Determinants of Own Source Revenue

Schedule I

A: General Information about the Gram Panchayat Instruction: Information for this section (Part A) needs to be collected from the Secretary of the Gram Panchayat. In the absence of Secretary, the information can be gathered from the Panchayat Development Officer (or PDO). Some Information Could also be filled using secondary sources (mentioned in the format) Introduction and informed consent Namaskara. My name is ______and I am working with Centre for Budget and Policy Studies, Bangalore, which is a well known research organization. We are conducting a study in selected gram panchayats to understand the factors that might be responsible for collection of own source revenue. For this purpose, I/we would like to speak to you and seek certain information relating your Gram Panchyat. The Questionnaire will take about one to one and a half hour to complete. Can I request you to please spare some time and give us an interview?

Enter the population Q1 What is the Total Population of the GP? Male Female

Source:

Election Register?

Census (Year)?

Distance (in km) Q2 How far is the GP from the district headquarters?

Distance (in km) Q3 How far is the GP from the Taluk headquarters?

Q4 Is there a highway close by to your GP? Yes / No

Q5 If yes, please specify the type of highway

National

Centre for Budget and Policy Studies Page 51

Understanding Determinants of Own Source Revenue

State Distance (in km) Q6 How far is the GP from this high way?

Male Female Total Q7 What is literacy rate in the GP (as per Census 2001)

Options Enter appropriate code Q8 What types of roads connect Kuccha Road 1 your GP with the Taluk? Tar Road 2 Metallic Road 3 Water-bound

macadam 4 Other 5 (please specify)

Options Enter appropriate code Q9 What is the frequency of the bus No bus service 1 service (public and private) to Once a day 2 your GP? Twice a day 3 Three times a day 4

Four times a day 5 More than 5 times a day 6

Q10 Please mention the different Particulars (of castes, social categories represented in Number of persons tribes and community) your GP? a Scheduled Caste b Scheduled Tribes c Minority ( Muslims, Christians) d Other Backward class e Others (specify) Total

Q11 What is the total number of households in the GP (Please note the number of households as per Census

2001 or 20111, if available; otherwise identify and record the source)

Q12 What are the occupations in which people are

engaged? a Agriculture b AgricultureLabor c Artisans d Small trade (e.g. petty shops)

Centre for Budget and Policy Studies Page 52

Understanding Determinants of Own Source Revenue

e Private employment f Government employment g Other (specify) h Is seasonal migration common Yes /No If yes to ‘g’ describe the general pattern (who, when, where – implications for GP functioning?)

Q13 Details of landholdings in the Number of households % GP a No Land b Marginal Farmers (1-2 ha) c Small Farmers (2-10 ha) d Large Farmers ( 10 & above ha)

Acres Q14 What is the type of land in the Rain fed land (Kushkhi) GP? Tank fed land (Tari) Garden Land (Bhagaytu) Other (please specify)

Acres Q15 What is the usual cropping Single crop per year pattern followed by most Two crops per year farmers? Three crops per year More than 3 crops per year

Q16 What are the major crops cultivated in the GP? Type of crop List the crop cultivated Rank the crops according to area under cultivation [major crop will get rank 1] a Food Grains (Rice, jowar, ragi etc.) b Plantation / cash crops (Sugarcane, areca nut, coffee, coconut, rubber, cotton, jute, etc.) c Vegetables d Fruits e Spices (Cardamom, pepper, etc.)

Centre for Budget and Policy Studies Page 53

Understanding Determinants of Own Source Revenue

f Other (Please specify)

Q17 What is the daily wage rate for labour in the GP (actual Male (in Rs) Female (in Rs) figures)? a Agricultural labour b Non-agricultural labour c Other type of work (please specify) For example skilled like carpenter, mason etc

Part B: Information about the GP and its members

Instruction: Information for this section (Part B) also may be collected from the Secretary of the Gram Panchayat. In the absence of Secretary, the information can be gathered from the Panchayat Development Officer (PDO).

Options Enter appropriate code Q18 Ownership of the Panchayat Owned by the GP 1 building. Rented 2 Other 3 (please specify)

Centre for Budget and Policy Studies Page 54

Understanding Determinants of Own Source Revenue

Q19 Profile of the GP members:

Gender Any Any training OSR received related as training pancha- received Secondary Primary Panchayat yat as Education Social category Occupatio Occupation Experience member pancha- n between yat 2010- member 12) between 2010- 12) # Name Age M Illiterate 1 Yes 1 Yes 1 F Literate (primary No 2 No 2 not completed) Elected once 1 2 SC 1 Agriculture 1 Elected Primary 3 ST 2 Agriculture laborer 2 twice 2 Higher primary Category A 3 Artisan 3 Elected 3 4 Category B 4 Small trade 4 times 3 Secondary 5 Others Private 5 Elected more PUC 6 (general) 5 Other 6 than 3 times 4 Degree 7 Other (please specify) 8 1 2 3

Centre for Budget and Policy Studies Page 55

Understanding Determinants of Own Source Revenue

Part C: Information regarding taxes, records etc.

Instruction: Information for this section is to be filled-in after checking GP records.

Q20 What all types of houses are # of such houses in the Type of house present in the GP? GP 1. RCC 2. Slabs 3. Tiles 4. Mud house 5. Hut 6. Households without

toilets

Q21 How many properties approximately would be outside Type of house # of such houses the gram tana?

RCC Slabs Tiles Others

Q22 How many houses (of each type) have legal water connections in your GP? Type of house # of houses % of such houses RCC Slabs Tiles Mud house Hut

Q23 Fill in details regarding the various taxes collected in the GP (in Rs) Sl.No Tax and Non tax receipts 2007-08 2008-09 2009-10 2010-11 (parameters) 1. Tax on lands ( lands not subject to agricultural assessment) 2. Tax on buildings (inclusive of land appurtenant to such buildings) 3. General water tax

4. Special water tax

Centre for Budget and Policy Studies Page 56

Understanding Determinants of Own Source Revenue

5. Tax on entertainment other than cinematograph show 6. Tax on vehicles other than motor vehicles 7. Electricity tax

8. Advertisement tax

9. Rent from land

10. Rent from building

11. Sale of land (including sale value of residential and commercial sites) 12. Sale of building

13. Income from lands

14. Income from garden lands ( sale of fruits, grass and minor produce) 15. Other miscellaneous income (sale of wood, fuel, sale of dead or fallen trees etc 16. Grassing charges from gomal lands 17. Sale of manure and street refuses like dust, dirt, dung, etc 18. Market fees

19. Slaughter houses , mutton stalls, chicken stall fees 20. Bus stand fees

21. Cart charges

22. Income from cattle ponds

23. Professional tax

24. Jatra fees

25. Katha transfer fees

26. License fees

Centre for Budget and Policy Studies Page 57

Understanding Determinants of Own Source Revenue

27. License fees (section 64 of KPR Act) 28. License fees for shops (section 69) 29. Developmental charges from private layouts 30. Notice fees

31. Fines

32. Health Cess

33. Education Cess

34. Library Cess

35. Beggary Cess

36. Income from crop harvest

37. Others

Q 24 Please physically verify the availability of the register for the current year (2011-12) and if not note the year for which the Register is available. Check the contents of the register to see if it has been maintained up-to-date.

Is the Register Is it up-to-date? (year for which Available? Type of register register is Yes or No Yes or No available)

Tax Fixation Mutation Property & building tax demand & collection Vehicle tax demand

& collection Advertisement

demand & collection Water tax demand &

collection Properties which

bring income Properties which

have given license Entertainment

Centre for Budget and Policy Studies Page 58

Understanding Determinants of Own Source Revenue

demand Cattle pond/ shed

Q25 Information regarding bill/ tax collectors Gender Employment Qualifications status Male Illiterate 1 Full time 1 Female Literate 2 Part time 2 Name of Primary 3 Contract Monthly # bill/ tax Age Higher primary 4 employee 3 remuneration collector Secondary 5 (in Rs) PUC 6 Degree 7 Other 8 (please specify) 1 2 3 4

Q 26 What is the year for which the audit of financial statements completed? (For instance audit of financial statements for the year 2010-11 should have been completed by now. Please indicate the year for which the audited financial statements are available after evidencing the documents) - Q 27 Please collect the following information from the records of GP.

Sl.No Demand Collection Balance Taxes 2009-10 2010- 2009-10 2010- 2009- 2010-11 11 11 10 1. House tax- Tax on building (inclusive of land appurtenant to such buildings) 2. Tax on lands (lands not subject to agricultural assessment) 3. General water tax 4. Auction 5. Rent on buildings 6. Health Cess 7. Education Cess 8. Library Cess 9. Beggary Cess 10. Other (specify)

Centre for Budget and Policy Studies Page 59

Q28 Information regarding resources:

2007-2008 2008-2009 2009-2010 2010-2011 Arrear Arrea Property # of Arrears Property # of Propert Property Arrears Resources s of # of rs of # of rate propertie of rate prope y rate rate of collect properties collec properties (fixed) s collection (fixed) rties (fixed) (fixed) collection -ion -tion a Residential buildings RCC Slabs Tiles Mud house Hut b Commercial buildings RCC/Slabs Tiles/Sheets c Industrial buildings RCC/Slabs Tiles/Sheets d Water connections Drinking purpose ( own use) Commercial

use e Vehicles f Hoardings In the GP

land Understanding Determinants of Own Source Revenue

Private land g Cinema hall Tent house Cinema

house h Market Daily Weekly Fair i Flour mill Other (please j specify)

Please add extra information in a separate sheet if necessary.

29. Please examine the agenda of the monthly meeting records held in 2009-10 and 2010-11 to fill the following:

Number of the monthly meetings held OSR (related issues) being part of the agenda in how many meetings? 2009-2010 2010-2011

Centre for Budget and Policy Studies Page 61

Understanding Determinants of Own Source Revenue

Schedule II: For Group Interview

Instructions: This questionnaire aims at understanding the knowledge, attitudes and skills of the GP members. The group should comprise: GP President, Vice President, one member of the standing committee (about 2-4 participants).

Part A: Participant profile

Years of Social Designat- Gender Education experience category ion in the GP Illiterate 1 President Literate 2 SC -1 1 1 Name of Primary 3 ST -2 2 Vice Pre < 1 1 # persons Age Higher Cat A 3 2 2 - 3 2 interviewed M-1 primary 4 Cat B 4 Standing 3 - 4 3 F-2 Secondary 5 Others committe 4 - 5 4 PUC 6 (Gen) 5 e 3 > 5 5 Degree 7 Member Other 8 4 (please specify) 1 2 3 4 5 Note: Cross reference to the table in Q 19 in which case the particulars of columns need not be filled

Centre for Budget and Policy Studies Page 62

Understanding Determinants of Own Source Revenue

Part B: Discussion questions

Instruction: Please pose each question in turn to the group. Allow for some discussion. Finally, choose the option that best describes the group’s opinion/ response to the question.

Q1: Does GP periodically prepare and publicly display information with respect to defaulters of tax? Yes 1

No 2

Q 2 Does the prepare a detailed list of properties with revised rates and display the same for information of public? Yes 1

No 2

Q3 The incentive to collect own source revenues is positive when it is possible to apply it to some development expenditure rather than meeting establishment expenses such as electricity or salaries. Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q4 There is reluctance on part of villagers (public) to pay taxes to GPs as they do not see this as a legitimate government

Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q5 The villagers (public) would be more willing to pay taxes / fees if they see some benefit coming to them from their payment of taxes.

Centre for Budget and Policy Studies Page 63

Understanding Determinants of Own Source Revenue

Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q6 There is a negative reaction from villagers to any increase in taxes which deters the gram panchayat from raising revenue from own sources Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q7 Gram Panchayat’s capacity to levy and collect revenues is poor. Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q8 There is lack of awareness on part of GP members and officials about the scope for and manner of mobilizing additional own sources revenues. Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q9 Levying or increasing existing taxes / fees is politically a sensitive issue which elected members of GP would rather leave alone Strongly Agree □ Agree □

Centre for Budget and Policy Studies Page 64

Understanding Determinants of Own Source Revenue

Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q10 The monitoring of collections of own revenues is poor because the GP is generally busy with other responsibilities such as implementing developmental programmes sponsored by the state and the central governments.

Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q11 The own source revenue collection tends to be poor where the general economic activity is poor, and the average household income is low. Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □ Q12 Grants from the state and central governments are more preferable than raising own source one’s own revenues Strongly Agree □ Agree □ Neither Agree nor Disagree □ Disagree □ Strongly Disagree □

Q13 What in view are five most important factors for improving own source revenue collection? 1. 2 3. 4 5

Centre for Budget and Policy Studies Page 65

Understanding Determinants of Own Source Revenue

Q14. What strategies have you used to collect OSR in your GP? List five most important strategies. 1. 2 3. 4 5 Q15 Has this GP ever received any recognition for any initiative / performance? Yes 1

No 2 If yes, please list the following No. Name of the recognition Purpose / what Year of receipt for 1 2

Centre for Budget and Policy Studies Page 66

Understanding Determinants of Own Source Revenue

Schedule III: Guidelines for GP Resident FGDs

Part A: Participant profile

Instruction: Please gather some residents (preferably a mix of male and female and of different economic classes) between 8 and 12 members. Please pose the questions given below in turn and record the option that best describes their response.

Profile of the respondents Name Age (In Male 1 Social Illiterate 1 completed Female 2 category Literate 2 years) SC 1 Primary 3 ST 2 Higher Minority 3 primary 4 OBC 4 Secondary 5 Other PUC 6 Degree 7 Other 8 (please specify)

Q1 Are the panchayat staff generally accessible during working hours?

Q2. Would citizens pay taxes more readily if better services are available?

Q3 What taxes/ fees do you pay to your gram panchayat? (Note: Record as many as they are able to list) a. b. c. d. e. f. g.

Centre for Budget and Policy Studies Page 67

Understanding Determinants of Own Source Revenue

Q2 How do you rate the performance of your GP?

Very Good 1 Good 2 Somewhat ok ` 3 Bad 4 Very Bad 5

If there is disagreement among people, record that.

Q3 Villagers (Public) do not pay taxes because they see no benefit from the payment of taxes.

Strongly Agree □ Agree □ Somewhat Agree □ Disagree □ Strongly Disagree □

If there is disagreement among people, record that.

Q4 What are the good aspects of tax/fee collection in your GP? List maximun five best features.

1. 2 3. 4 5

Q5 What are the worst aspects of tax/fee collection in your GP? List maximum five worst / most difficult features.

1. 2 3. 4 5

Q6 What all can the GP do to increase the tax / fee collection of the Gram Panchayat? List 5 most important ones.

1. 2 3. 4 5

Q6a Is your GP in a position to undertake such steps? Yes / NO

Centre for Budget and Policy Studies Page 68

Understanding Determinants of Own Source Revenue

(Record the response and its reasons)

Q7 What all can the people do to increase the tax / fee collection of the Gram Panchayat? List 5 most important ones.

1. 2 3. 4 5

Q7a Are people in this GP in a position to undertake such steps? Yes / NO (Record the response and its reasons)

______

Centre for Budget and Policy Studies Page 69

Understanding Determinants of Own Source Revenue

Tables

Table A1: Distribution of GPs (Percentage) – Population by Per capita OSR (Category-wise)

Most Backward

Per capita OSR Population per GP 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total 0to4000 25.81 45.16 14.52 9.68 1.61 3.23 100 4001to8000 44.91 36.23 11.78 3.49 1.90 1.70 100 8001to12000 40.49 36.81 11.66 2.45 4.29 4.29 100 12001to16000 20.00 28.00 32.00 8.00 4.00 8.00 100 Above16000 60.00 0.00 20.00 0.00 20.00 0.00 100 More Backward

Population per Per capita OSR GP 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total 4001to8000 19.44 42.53 21.02 6.93 3.89 6.20 100 8001to12000 23.88 38.06 17.16 9.70 3.73 7.46 100 12001to16000 18.52 33.33 11.11 11.11 3.70 22.22 100 Above16000 0.00 25.00 25.00 0.00 25.00 25.00 100 Backward Population per Per capita OSR GP 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total 4001to8000 18.10 34.61 22.72 10.44 5.28 8.85 100 8001to12000 15.00 25.00 22.50 6.67 6.67 24.17 100 12001to16000 55.56 22.22 11.11 0.00 0.00 11.11 100 Above16000 20.00 0.00 20.00 40.00 0.00 20.00 100 Forward Population per Per capita OSR GP 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total 4001to8000 6.23 28.29 26.73 14.53 8.91 15.31 100 8001to12000 9.47 15.23 23.05 13.17 8.64 30.45 100 12001to16000 0.00 21.43 25.00 10.71 3.57 39.29 100 Above16000 20.00 0.00 60.00 20.00 0.00 0.00 100

Centre for Budget and Policy Studies Page 70

Understanding Determinants of Own Source Revenue

Table A2: Distribution of GPs (Percentage) – Proportion of SC Population by Per capita OSR (Category-wise)

Per capita OSR Proportion of SC to Total Population 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total Most Backward 0to15 38.44 38.44 13.81 6.01 0.90 2.40 100 16to30 43.59 35.52 12.12 3.48 3.20 2.09 100 31to45 46.51 38.37 10.47 0.58 1.74 2.33 100 46to60 57.14 25.00 10.71 3.57 0.00 3.57 100 Above 60 50.00 33.33 16.67 0.00 0.00 0.00 100 More Backward

0to15 13.54 42.42 24.24 8.08 3.43 8.28 100 16to30 20.52 40.24 20.93 8.65 2.82 6.84 100 31to45 26.67 45.00 16.67 2.50 6.67 2.50 100 46to60 26.09 47.83 21.74 0.00 4.35 0.00 100 Above 60 25.00 50.00 0.00 25.00 0.00 0.00 100 Backward 0to15 14.0 34.5 24.5 12.0 6.1 8.9 100 16to30 18.6 29.0 22.7 12.3 6.3 11.0 100 31to45 21.3 26.0 17.3 11.8 2.4 21.3 100 46to60 38.9 16.7 33.3 5.6 0.0 5.6 100 Above 60 0.0 50.0 0.0 50.0 0.0 0.0 100 Forward 0to15 3.7 27.2 30.1 16.8 8.0 14.3 100 16to30 8.6 23.0 23.0 14.3 9.8 21.3 100 31to45 5.7 20.7 25.9 16.7 9.8 21.3 100 46to60 8.3 8.3 20.8 20.8 12.5 29.2 100 Above 60 50.0 25.0 25.0 0.0 0.0 0.0 100

Centre for Budget and Policy Studies Page 71

Understanding Determinants of Own Source Revenue

Table A3: Distribution of GPs (percentage) – Proportion of ST Population by Per capita OSR (Category-wise)

Per capita OSR Proportion of ST to total Population 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total Most Backward 0to15 38.14 38.47 14.10 4.48 2.62 2.19 100.00 16to30 52.63 31.98 9.31 1.62 2.02 2.43 100.00 31to45 65.15 27.27 3.03 1.52 0.00 3.03 100.00 46to60 71.43 23.81 4.76 0.00 0.00 0.00 100.00 Above 60 37.50 50.00 0.00 12.50 0.00 0.00 100.00 More Backward

0to15 16.59 42.15 22.68 7.96 3.43 7.19 100.00 16to30 21.82 42.42 17.58 7.27 4.85 6.06 100.00 31to45 31.82 34.09 22.73 4.55 0.00 6.82 100.00 46to60 28.57 52.38 9.52 4.76 4.76 0.00 100.00 Above 60 40.00 0.00 60.00 0.00 0.00 0.00 100.00 Backward 0to15 17.12 30.23 23.29 12.24 5.63 11.48 100.00 16to30 16.00 40.00 21.33 12.00 5.33 5.33 100.00 31to45 20.00 33.33 20.00 0.00 6.67 20.00 100.00 46to60 0.00 80.00 0.00 20.00 0.00 0.00 100.00 Above 60 0.00 0.00 100.00 0.00 0.00 0.00 100.00 Forward 0to15 4.50 24.26 27.69 16.34 9.49 17.72 100.00 16to30 15.60 31.91 22.70 13.48 1.42 14.89 100.00 31to45 12.90 32.26 25.81 9.68 6.45 12.90 100.00 46to60 12.50 37.50 25.00 12.50 0.00 12.50 100.00 Above 60 16.67 16.67 50.00 16.67 0.00 0.00 100.00

Centre for Budget and Policy Studies Page 72

Understanding Determinants of Own Source Revenue

Table A4: Distribution of GPs (percentage) – Proportion of Marginal Workers to Total Workers by Per capita OSR (Category-wise)

Per capita OSR (Rs) Proportion of Marginal Workers 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total

Most Backward 0to10 38.67 35.81 15.43 3.81 2.48 3.81 100.00 11to20 46.66 36.88 9.78 3.09 2.40 1.20 100.00 21to30 43.36 36.36 11.89 6.29 1.40 0.70 100.00 31 and above 50.00 50.00 0.00 0.00 0.00 0.00 100.00 More Backward 0to10 15.51 40.46 23.35 8.20 3.39 9.09 100.00 11to20 19.22 44.49 20.09 7.78 3.67 4.75 100.00 21to30 29.91 37.38 21.50 3.74 2.80 4.67 100.00 31 & above 0.00 50.00 25.00 12.50 12.50 0.00 100.00 Backward 0to10 13.72 27.24 24.85 13.92 5.77 14.51 100.00 11to20 18.03 35.58 21.63 11.06 4.81 8.89 100.00 21to30 27.27 34.09 20.45 7.95 6.82 3.41 100.00 31 & above 41.67 25.00 16.67 0.00 16.67 0.00 100.00 Forward 0to10 4.93 22.69 27.62 15.93 9.03 19.80 100.00 11to20 6.68 29.31 26.72 16.81 8.84 11.64 100.00 21to30 11.11 42.86 23.81 12.70 1.59 7.94 100.00 31 & above 0.00 16.67 50.00 0.00 16.67 16.67 100.00

Centre for Budget and Policy Studies Page 73

Understanding Determinants of Own Source Revenue

Table A5: Distribution of GPs (percentage) – Proportion of Marginal Workers to Total Workers by Per capita OSR (Category-wise)

Per capita OSR (Rs) Proportion of BPL Households 0 to 20 21 to 40 41 to 60 61 to 80 81 to 100 > 100 Total

Most Backward 0to15 33.67 22.45 24.49 9.18 5.10 5.10 100.00 16to30 37.30 40.98 12.30 3.28 3.28 2.87 100.00 31to45 44.62 36.71 10.76 4.11 2.85 0.95 100.00 46to60 44.66 36.26 13.74 3.44 0.76 1.15 100.00 Above 60 46.79 37.00 9.17 2.45 1.53 3.06 100.00 More Backward 0to15 17.83 42.68 20.38 10.83 2.55 5.73 100.00 16to30 14.74 46.84 21.58 8.95 2.63 5.26 100.00 31to45 17.77 37.19 26.86 5.79 4.13 8.26 100.00 46to60 18.03 45.90 20.77 6.56 2.73 6.01 100.00 Above 60 18.79 40.76 20.70 8.28 4.46 7.01 100.00 Backward 0to15 17.65 27.06 17.65 11.76 2.35 23.53 100.00 16to30 12.44 27.36 23.88 15.42 6.97 13.93 100.00 31to45 17.62 30.48 22.86 11.90 6.19 10.95 100.00 46to60 20.69 34.98 19.21 12.32 3.94 8.87 100.00 Above 60 17.47 33.90 26.37 9.25 6.51 6.51 100.00 Forward 0to15 5.77 18.27 27.40 21.63 8.65 18.27 100.00 16to30 5.43 22.47 25.43 16.30 8.89 21.48 100.00 31to45 5.60 22.93 30.67 14.40 9.33 17.07 100.00 46to60 5.42 28.61 27.71 16.87 7.83 13.55 100.00 Above 60 4.45 29.35 26.52 14.57 8.70 16.40 100.00

Centre for Budget and Policy Studies Page 74

Understanding Determinants of Own Source Revenue

Table A6 - Control variables for OLS regression analysis

Control Variables

Bangalore - Backward Taluk Category 411282.1** t-stat -7.54 Bangalore - Forward Taluk Category 496681.6**

t-stat -12.6 Bangalore - More Backward Category 199917.9** t-stat -7.75 Bangalore - Most Backward Category 216672.0** t-stat -8.16 Belgaum -Backward Category 196494.5** t-stat -7.33 Belgaum - Forward Category 228539.6** t-stat -9.11 Belgaum - More Backward Category 193690.2** t-stat -8.27 Belgaum - Most Backward Category 139292.0** t-stat -5.56 Gulbarga - Backward Category 264869.1**

t-stat -5.35 Gulbarga - Forward Category 223455.3** t-stat -7.28

Gulbarga - More Backward Category 224520.1** t-stat -6.64 Gulbarga - Most Backward Category 132362.4**

t-stat -5.24 Mysore - Backward Category 219408.0** t-stat -7.2

Mysore - Forward Category 321582.9** t-stat -10.66 Mysore - More Backward Category 212376.8** t-stat -7.16 Mysore - Most Backward Category 130063.8** t-stat -3.93

Centre for Budget and Policy Studies Page 75

Understanding Determinants of Own Source Revenue

References: Anand Saharanaman(2012) - Panchayat Finances and the Need for evolutions from the State Government, Economic and Political Weekly, Vol XLVII No. Page 73-80 Pratap Ranjan Jena, Manish Gupta (2008) – Revenue Efforts of Panchayats: Evidence from Four States, Economic and Political Weekly, July 26, 2008, Page 125-130 M A Oommen Ed (2008) - Fiscal Decentralization in Local Governments in India, Cambridge Scholars Publishing C Rangarajan, Inaugural Address at the Seminar on Rural Fiscal Decentralization organized by the NIPFP in collaboration with the World Bank Roy Bahl, GeetaSethi and Sally Wallace (2009), West Bengal: Fiscal Decentralization to Rural Governments: Analysis and Reform Options, International Studies Program, Working Paper 09-07, Andrew Young School of Policy Studies M. Govind Rao et al ( ), Fiscal Decentralization in Rural Governments in India, Chapter II – Fiscal Decentralization in Karnataka, NIPFP, Delhi Nesar Ahmad (Undated) - Decentralization of Finance - A Study of Panchayat Finances in India (Draft Version), Centre for Budget and Governance Accountability, (A Programme of NCAS)New Delhi

V N Alok (2006), Local Government Organization and Finance: Rural India, LocalGovernance in Developing Countries - edited by Anwar Shah, Word Bank Report of Third State Finance Commission, Government of Karnataka, 2008

Centre for Budget and Policy Studies Page 76