Municipal corporations need to impose adequate user charges for essential services like water supply and sanitation, to boost non-tax revenues and provide quality public services, according to a Reserve Bank of India (RBI) report.

The ‘Report on Municipal Finances’ delves into the fiscal position of 232 municipal corporations (MCs) from 2019-20 to 2023-24 (Budget Estimates), with a focus on the theme ‘Own Sources of Revenue Generation in Municipal Corporations: Opportunities and Challenges’.

“MCs can significantly enhance them (non-tax revenues) by applying appropriate and adequate fees and user charges for essential services such as water supply, sanitation, and waste management while also ensuring seamless availability of high-quality public services,” it said.

These measures, combined with more transparent and accountable governance practices, can contribute to bolstering the financial health of MCs, setting off a virtuous cycle of better services for the public, stronger revenues and a continuous upgrade of the urban infrastructure, it said.

The major non-tax revenue sources include user charges, trade licensing fees, layout/building approval fees, development charges, betterment charges, sale and hire charges, market fees, slaughterhouse fees, parking fees, birth and death registration fees.

Sources of tax revenue, include property tax, vacant land tax, water benefit tax, advertisement tax, sewerage benefit tax, tax on animals, and taxes on carriages and carts.

“Non-tax sources are particularly important in the context of constraints on tax revenues. MCs in India earn 66.5 per cent of non-tax revenue from fees and user charges,” the report said.

It noted that fees and user charges represent important sources of revenue for all civic bodies, particularly in Maharashtra, Rajasthan, Gujarat, and Tripura, where their share in own-source revenue outweighs that of property taxes.

This, the report said can be attributed to various factors, including a high degree of urbanisation, tourist destinations and the subsequent expansion in supplies of essential municipal services such as water supply, waste management and transportation.

The report further said own sources of revenues (tax revenue, non-tax revenue, and other receipts) afford municipalities increased financial autonomy, stability, and enhanced capacity to strategise and execute urban development initiatives more efficiently and effectively.

Municipal corporations need to augment their own revenue sources for greater operational and financial flexibility. “By optimising property and water taxes, increasing non-tax revenues, and adopting transparent governance practices, urban local bodies can improve their finances,” it said.

Leveraging technologies such as Geographic Information System (GIS) mapping and digital payment systems can enhance property tax collections, it said.

Periodic revisions in water and drainage taxes, and fees and user charges, coupled with use of technology for plugging leakages, can also help improve their revenue collections, it added.