Municipal Corporations’ Tax Revenue Share Rise in Recent Years

Table of Contents

Context: A report by the Reserve Bank of India (RBI) on municipal finances highlighted the rise in tax revenue share in recent years.

Theme: “Own Sources of Revenue Generation in Municipal Corporations: Opportunities and Challenges.”
The first edition was published two years ago.

Revenue Generation Breakdown

In FY24, municipal corporations are projected to generate their revenue from various sources:

Own Taxes, Fees, and User Charges: 50%
Revenue Grants from Central and State Governments: 25%
Other Sources: The remaining portion includes rental income, compensations, and investment income.

Sources of Revenue of Municipal Corporation in India

Own Tax Revenue: These are taxes levied and collected directly by the municipal corporation. They are the primary source of revenue for many municipal corporations and include:
- Property Tax
- Water Tax
- Electricity Tax
- Education Tax
- Entertainment Tax
- Advertisement Tax
- Professional Tax
Non-Tax Revenue: Non-tax revenues are funds generated from fees, charges, and other sources that do not directly involve taxation:
- Fees and User Charges
- Licence Fees
- Building Permission Charges
- Rentals from Municipal Properties
- Compensations and Investment Income
Transfers from Central and State Governments: These are funds provided by higher levels of government to support municipal functions, often based on criteria such as population, economic need, and development goals:
- Finance Commission Grants
- State Finance Commission Grants
Central and State Scheme Contributions: Support for national or state development schemes like the Smart Cities Mission, Swachh Bharat Mission, AMRUT (Atal Mission for Rejuvenation and Urban Transformation), and others.
Revenue Grants and Reimbursements: Funds for municipal services, and in some cases, reimbursement for expenses on joint projects with other government agencies.

Own Tax Revenue: Increased from 27.3% to 30%
Fees and User Charges: Rose from 18.7% to 20.2%
Revenue Grants, Contributions, and Subsidies: Decreased from 27.9% to 24.9%
Compensations and Rental Income: Remained stable at 13% and 6%, respectively.
Interest and Investment Income: Constituted about 1-2% of total revenue in both periods.

This data indicates a growing ability of municipal corporations to raise their own revenue while decreasing reliance on government grants.

In FY17, own tax revenue constituted 43% of total revenue; this has significantly dropped to only 30% in FY24.
Conversely, the share of transfers from Central and State governments has increased, indicating a long-term decline in self-generated revenue capabilities post-GST.

In FY24, the highest own tax revenue generation was reported in:
- Karnataka: 53.8%
- Telangana: 50.3%
- Tamil Nadu: 44.3%
- Jharkhand: 44.0%
States such as Rajasthan, Odisha, and Uttarakhand reported the lowest ratios.

The quality of expenditure among municipal corporations is showing improvement:

The share of revenue expenditure decreased from 43.9% in 2019-20 to 38.5% in 2023-24 (BE).
Correspondingly, capital expenditure increased from 56.1% to 61.5%, indicating a shift towards more productive spending.