GUIDELINES FOR COMPLIANCE AUDIT ON

Levy and collection of Revenue (Tax and Non-Tax) in Puducherry and Oulgaret Municipalities

Office of the Principal Accountant General (General and Social Sector Audit), and Puducherry, -18.

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INDEX

Sl. No. Content Page No. 1 Introduction 3

2 Organisational set-up 3

3 Revenue of the Municipalities 4

4 Audit objectives 11

5 Audit criteria 11

6 Scope of Audit, Methodology and Coverage 11

7 Audit Design Matrix Annexure-II

8 Time Schedule 12

9 Annexure-I 13

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Guidelines for Compliance Audit on “Levy and collection of Revenue (Tax and Non-Tax) in Puducherry and Oulgaret Municipalities”

1 Introduction

The UT of Puducherry consists of five Municipalities, viz., Puducherry, Oulgaret, , Mahe and . The Puducherry Municipality comprises of the erstwhile Communes of and Mudaliarpet. It covers an area of 19.46 sq. kms. with population of 2.44 lakh (as per 2011 Census) and is divided into 42 wards. The Civic Elections to the Municipality were last conducted in June 2006 and the Council’s tenure expired in 2011, following which elections have not been held. Oulgaret (Uzhavarkarai) Municipality is located in the North East of Pondicherry municipal limits. The Oulgaret Commune Panchayat, was elevated to the status of a Municipality on 14 January 1994. It covers an area of 36.7 sq kms with a population of 3.00 lakh (2011 Census) and is divided into 37 wards.

2 Organisational Set-up

At the level of Government, the Secretary to the Government, Local Administration Department administers all the Municipalities and the Commune Panchayats in the of Puducherry. At the Directorate level, the Director of Local Administration Department functions as a bridge between the Local Bodies and the Government. The Director is assisted by four Deputy Directors, of whom one is the Deputy Director for Municipal Administration, who is in charge of the five Municipalities. The Municipalities are headed by a Chairman who is assisted by the Commissioner and Revenue officers. Consequent to expiry of Council’s tenure in 2011, the Municipalities are headed by Designated Officer who acts as the Commissioner of the Municipalities. All property vested in the Municipal Council shall, until new councillors are elected, vest in the Special Officer.

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3 Revenues of the Municipalities

3.1 Tax-Revenue:

Section 118 under Chapter VIII of the Puducherry Municipalities Act, 1973, provides that every municipal council shall impose the following taxes:  a property tax ;  a profession tax ;  a tax on advertisements other than advertisements published in the newspapers. With the sanction of Government, the Municipal Council shall impose a duty on certain transfers of immovable property in the form of additional stamp duty  a tax on entertainments;  a duty on toddy trees in the form of additional excise duty on toddy trees;  a tax on any building or land within municipal limit used for specific purposes listed in Schedule III of the Act which shall not exceed five per cent of the property tax levied and shall be in addition to the license fees charged for the business activities in the building ibid and the property tax;  a toll on animals and vehicles.

The municipal council shall pass a resolution for levy of a tax, the rate at which any such tax shall be levied and the date from which it shall be levied. Before passing a resolution or imposing a tax for the first time or increasing the rate of an existing tax, the council shall publish a notice in at least one newspaper, on the notice board of the municipal office and in such other places within municipal limits and by beat of drum, fix a reasonable period not being less than one month for submission of objections or suggestions and consider the objections or suggestions, if any, received within the period specified. (i) Property tax: Property tax shall be levied on all buildings and lands within municipal limits and comprise of a tax for general purposes, a water and drainage tax to provide for

4 expenses connected with the construction, maintenance, of water or drainage works provided or hereafter to be provided, a lighting tax to provide for expenses connected with the lighting of the municipality by gas or electricity, and a scavenging tax to provide for expenses connected with the removal of rubbish, filth from private premises and cleaning of latrines. The property tax on buildings and lands shall be a first charge upon the said buildings or lands (Section 134 of the Act 1973). The property tax shall be levied every half-year and shall be paid by such person or persons within fifteen days from the date of commencement of the half-year (Section 135 of the Act 1973). When any building whether ordinarily let or occupied by the owner himself has been vacant and unlet for thirty or more consecutive days in any half-year, the commissioner shall remit so much (not exceeding one half) of such portion of the tax as relates to the building only as is proportionate to the number of days during which the building was vacant and unlet in the half-year (Section 139 of the Act 1973). Procedure for assessment: The commissioner shall prepare an assessment list of all lands or buildings or lands and buildings in the municipality. The authorised valuation officer appointed by Government for the purpose shall verify the assessment as done by the Commissioner and return the list duly checked and corrected to the Commissioner within a period of two months. The Commissioner shall give public notice of the assessment list. The assessment of every property in the municipal area shall, as far as practicable, be done not less than once in five years and once done shall remain in force for five years. The publication of the authenticated assessment list shall be done not later than the 30th day of June of the year to which the list relates. For the purpose of assessing the property tax, the authorised valuation officer or the Commissioner, as the case may be, by notice, call on the owner or occupier of any building / land to furnish him, within thirty days after the service of the notice, with returns of the rent payable for the land or building, the cost of

5 erecting the building and the measurements of the land and with such other information as may be required and every owner and occupier of whom such notice is served shall be bound to comply with it and to make a true return to the best of his knowledge or belief. Levy of Property tax: Levy of property tax is governed by the Pondicherry Municipality (Assessment of Annual Rental value of Buildings) Rules (the PT Rules), 2000. The Rules provide that the buildings in a municipal area shall be classified by the municipal council on three criteria, viz., Location of building like main road, street etc., use of buildings like residential, commercial etc., and type of construction like building with RCC roof, tiled roof, etc. As per Sub-section (2) of Section 121 of the Act, 1973, property tax in respect of buildings or lands which are occupied by or adjacent or appurtenant to building or both should be levied on the basis of its Annual Rental Value (ARV). Sub-Rule (1) of Rule 5 of the PT Rules, 2000, states that rate of ARV per square feet shall be fixed by the Municipal Council with prior approval of Government having regard to location, use and type of construction of building. Sub-Rule (3) of Rule 5 of the PT Rules, 2000, also states that rental value per square feet of plinth area for different classes of buildings should be published from time to time by Municipal Council with prior approval of Government. Annual Rental Value of different classes of buildings within the municipal areas for the quinquennial period from 1 April 2012 to 31 March 2017 was notified by the Government of Puducherry in March 2012 and for the period from 1 April 2017 to 31 March 2022 was notified in March 2017. Government had directed that from 1 April 2017, the existing rental value for assessment of property tax to be increased at uniform rate of 15 per cent for residential building, 25 per cent for commercial / industrial buildings and 20 per cent for other structures. Concession of 50 per cent reduction in ARV of owner occupied residential building was withdrawn from 1 April 2017 and tenant occupied building ARV to be increased by 10 per cent.

6 Rule 6 ibid provide that Property tax shall be assessed at the rate of nine per cent of the ARV (Tax for general purpose: 7%; Tax for lighting: 1% and Tax for Scavenging: 1%).

(ii) Profession Tax: As per Section 144 of the Act, 1973, Profession tax is payable by a company transacting business in the Municipality for not less than 60 days in a half-year and by a person, who exercises a profession, art or calling or transacts business or holds any appointment within the Municipality or outside the Municipality but who resides in the Municipality for not less than 60 days in a half-year. Puducherry Municipalities Act, 1973 was amended in May 2017 bringing in changes in the maximum half-yearly Profession Tax. Assessment of Profession tax: The Commissioner of Municipalities shall assess persons to profession tax on a scale determined by the Municipal Council from time to time. The Commissioner may, by notice, require any employer to furnish within a specified time a list in writing of the names and residential addresses of all persons employed by such employer with a statement of the salary or income of such employed persons. Every employer shall, on receipt of a requisition from the Commissioner, deduct from the salary or wages of any person employed by the employer such amount of profession tax, as may be specified in such requisition as being due from such employed person. Every person making the deduction shall prepare a return in writing showing the name and residential address of every person from whose salary or wages deduction was made, the amount so deducted: and the half- year to which the deduction relates. If any person responsible for making any deduction fails to comply with any of the provisions of this section, he shall be punishable with fine which may extend to five hundred rupees.

7 If the profession tax due from any company or person is not paid, the Commissioner shall cause a notice to be served on such company or person to pay it within fifteen days of the date of such service (Section 147 of the Act, 1973). (iii) Advertisement tax: According to Section 152 of the Act, 1973, every persons who erects, exhibits, fixes or retains upon or over any land or building or wall or hoarding or structure, any advertisement to public view in any manner in any place public or private, shall pay a tax determined by the Municipal Council. Rate of Advertisement Tax prescribed in Schedule VI of the Act, 1973 was revised in May 2017. The Commissioner shall collect tax on advertisement for any period not exceeding one year at a time at the rates approved by the Municipal Council. If any advertisement be erected, exhibited, fixed or retained contrary to the provisions of section 152 or section 153 or after the written permission for the erection, exhibition, fixation, or retention thereof for any period shall have expired or become void, the Commissioner may, by notice in writing, require the owner to remove such advertisement or may enter any building, land or property and have the advertisement removed.

(iv) Entertainment tax: Section 161 of the Act, 1973, states that the entertainments tax shall be levied on each payment for admission to any entertainment at specified rates.  Entertainment Tax on cinematography exhibition is collected on each payment of admission at 25 per cent, after deduction of 10 per cent for maintenance.  Entertainment Tax on Cable TV is imposed at 10 per cent on the amount collected by the cable operator by way of contribution or subscription etc.  Other Entertainments: In licensed premises under provision for places of public resort, entertainment tax is collected at 45 per cent of the value of admission.

The entertainments tax shall be levied in respect of each person admitted on payment, and shall be calculated and paid on the number of admissions. Every

8 proprietor of an entertainment shall submit such returns relating to payments for admission to the entertainment.

3.2 Non-Tax Revenue Apart from the Tax Revenue, the Municipalities collect non-tax revenue in the form of fees on trade licence, receipts from leasing of usufruct treest, receipt from kalyana mandapams, etc. (i) Trade Licence: Section 355 (1) and 356 read with Section 457 (2) of the Act 1973, states that Government shall specify the purpose for which premises shall not be used without a proper license issued by the Commissioner of the Municipality and shall prescribe the rate of fees to be charged for license granted or renewed, and permission granted for installation of any machinery or manufacturing plant in any premises. The list of purposes (162 items) for which licence is required and the rates of licence fees and permission fees were revised in 1999 and thereafter, in September 2017. (ii) Rent for Stalls and Shops belonging to the Municipalities: The Stalls and Shops are leased out in public auction fixing the Rental Rates computed under the provision of Puducherry Buildings (Lease and rent control) Act, 1969. Mode of collection of revenue: When any tax, fee, cess, and other dues, not being property tax or profession tax becomes due from any person, the Commissioner shall serve upon such person a bill for the sum due (Section 176 of the Act, 1973). If the person liable for the payment of tax, fee, cess or other due does not, within fifteen days from the commencement of the half-year in respect of property tax or from the service of the notice or bill, as the case may be, pay the sum due or show sufficient cause for non-payment of the same to the satisfaction of the Commissioner, the Commissioner may recover by distraint under a warrant and sale of the movable property of the defaulter, the amount due from the defaulter. The Commissioner

9 shall give to every person making payment of a tax, fee, cess or other sum due, a receipt thereof signed by him or by some person duly authorized by him in that behalf. Any sum due on account of any tax levied by the municipal council, if not paid within fifteen days from the date on which the tax is due, shall be deemed to be in arrears, and thereupon such simple interest not exceeding ten per cent per annum as the Commissioner may fix shall be payable on such sum from the date aforesaid. The interest payable under shall be collected as if it formed part of the tax. Irrecoverable revenue: Section 187 of the Act 1973, states that the municipal council may write-off any tax, fee or other amount whatsoever due to it, if in its opinion, such tax, fee, amount is irrecoverable. Accounting of revenue: All moneys received by the Municipal council shall be lodged in the nearest Government treasury or, with the sanction of the Government in a bank. 3.3 Revenue collected during 2015-16 to 2017-18 The details of demand raised for collection of revenue, revenue collected and balance pending collection relating to Puducherry and Oulgaret Municipalities for the period 2015-16 to 2017-18 are given in Table 1 below. The details of Heads of Accounts under which various items of tax collected is remitted in the Municipal Council Savings Bank Account is furnished in the Annexure I. Table 1: Demand, Collection and Balance of Revenue during 2015-18 (Rs. in lakhs) 2015-16 2016-17 2017-18 Puducherry Oulgaret Puducherry Oulgaret Puducherry Oulgaret Tax Non- Tax Non- Tax Non- Tax Non- Tax Non- Tax Non- tax tax tax tax tax tax Demand 1556.11 665.18 1296.03 374.93 1593.93 750.79 1029.22 364.30 3122.75 451.55 1676.65 272.27 Collection 743.51 655.87 725.57 342.37 841.41 714.74 671.98 327.23 1018.67 381.42 586.75 222.30 Balance 812.60 9.31 570.46 32.56 752.52 36.05 357.24 37.07 2104.08 70.13 1089.90 49.97 Source: Details furnished by the Municipalities Besides the above, the transfer of stamp duty collected by the Revenue Department to Puducherry and Oulgarete Municipalies and compensation paid by

10 Government in lieu of abolition of Octroi, to Puducherry Municipality during the years 2015-16 to 2017-18 were (Rs. in lakhs) Year Stamp duty Compensation Puducherry Oulgaret 2015-16 1022.61 1405.57 309.92 2016-17 974.91 1096.18 489.40 2017-18 421.87 742.06 300.00

4 Audit objectives

Audit objectives would be to assess whether  All the properties in the Puducherry and Oulgaret Municipalities were assessed for tax and levied tax;  The levied taxes and non-tax revenue was collected;  the collected revenue was accounted for without delay and as per the Rules in force.

5 Audit Criteria

The audit findings would be benchmarked against the following criteria:

 The Puducherry Municipalities Act, 1973 and Rules made thereunder  Puducherry Municipality Manual and Bye-laws  Government Orders and instructions on the levy and collection of revenue  General Financial Rules.

6. Scope of Audit, Methodology and Coverage The Compliance audit would cover the system followed by Puducherry and Oulgaret Municipalities in assessment, levy and collection of tax and non-tax revenues and the correctness of accounting of the collected revenues into the Municipal Fund account. The Compliance audit would cover a period of three years from 2015-16 to 2017-18. The Compliance audit would commence with an entry conference with the Secretary to Government, Local Administration Department to discuss the audit

11 objectives. Records relating to assessment, levy and collection of tax and non-tax revenue will be examined at the Secretariat, Directorate, and the Puducherry and Oulgaret Municipalities. An exit conference would be held with the Secretary of Local Administration Department, on completion of the compliane audit, to discuss the outcome of the compliance audit. 7. Audit Design Matrix The three major themes are split into number of study questions. All the study questions are linked with appropriate audit criteria, the requirement of evidence, the source / method of gathering the evidence and analysis of evidence to arrive at a conclusion, in the Audit Design Matrix enclosed in Annexure-II. 8. Time Schedule

The following time schedule is proposed for the Compliance Audit.

Sl. Schedule Date No. 1. Commencement of field visit First week of March 2018 2. Mid-term Review Last week of April 2018 3.. Issue of factual note by the Audit 15 June 2018 party

Principal Accountant General

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Annexure I Statement Showing the details of tax collection under the Head of Account to remit in the Municipal Council Savings Bank Account

Sl. Nature of Tax Collection Head of No. Account 1 Property tax A-1(1) 2 Profession tax A-1(2) 3 Advertisement Tax A-1(3) 4 Share of duty levied on Transfer for property A-1(4) 5 Entertainment tax –i).Cinema / Exhibition etc., A-1(5)-i) ii) Cable T.V. A-1(5)-ii) 6 Octroi Tax / Octroi Compensation A-2(1) 7 Duty on toddy trees A-2(2) 8 Tools and Animal and Vehicles A-2(3) 9 House rent from Municipal Staff B-1 10 Trade Licence B-2 11 Receipts on leasing of usufructs of trees B-3 12 Rent Licence fees from shop &Stalls B-4 13 Rent licence fee from Municipal Land buildings B-5 14 Receipt from Municipal T.B B-6 15 Receipt from Kalyana Mandapams B-7 16 Sale of buildings & lands B-8 17 Sale of unused articles B-9 18 Receipt from Kamban Kalai .Arangam B-10 19 Receipt from pay & use Latrines B-11 20 Sale of Garbage’s B-12 21 Receipt from auctioning of fishing right of lakhs B-13 22 Receipt for markets (Adikkasu) B-14 23 Revenue from Auctioning of cycle stand B-15 24 Charges for Stocking Materials B-16 25 Bus stand fees B-17 26 Fees for Registration of Births & Deaths etc., B-18 27 Vacant Land Tax B-19 28 Pavement rent charges B-20 29 Sale of tender schedule B-21 30 Recovery of cost for road cuttings B-22 31 Fines and penalties B-23 32 Receipt from Marie Hall B-24 33 Current Consumption Charges B-25 34 Hiring of machinery equipments B-26 35 Service fees for cleaning of private latrines B-27 36 Fees realised from slaughter house. B-28

13 37 P.S. Charges on grant works B29 38 Miscellaneous receipt B-30 39 Recovery of repair & Service charges in r/o Vehicles of other B-31 Communes 40 Development charges B-32 41 Cattle Pound B-33 42 Receipt and Recovery of Advances from Staffs C-1-(1) 1). F.A 2). C.A C-1-(2) 3).M.C.A C-1(3) 4). H.B.A C-1(4) 5). Rain coat C-1(5) 6). Other Advance (Flood) C-1(6) 43 Interest from Bank on deposits D-1 44 Interest Advances to staffs D-2 45 Sale of cement to contractors E-1 46 Sale of bitumen to contractors E-2 47 Cost of materials issued on department works E-3 48 Security & E.M.D F-1 49 Cash deposit F-2 50 Other miscellaneous Deposits F-3 51 Grant from the Govt. for Salary Purpose G

Sr. Audit Officer / ECPA Hqrs.

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