STATE OF MUNICIPAL FINANCES

FROM WEALTH KOSA) COMES the power of the Government danda).’ This is a quote from Arthashastra, a treatise on state crafts by Kautilya, written sometime in 300 B.C.

Collecting taxes, fees, and penalties is a fundamental way in which any level of government can generate revenue for making investments for creating basic provisions for the citizens. This is true for the Urban Local Bodies ULBs) too. As per the 12th Schedule of the Indian Constitution, urban local bodies are supposed to deal with 18 municipal functions. However, as per Praja’s Urban Governance Index 2020, no state has been able to devolve all 18 municipal functions to the Urban Local Bodies. One reason for this is the non-availability of adequate financial resources with the ULBs to deal with all 18 municipal functions.

But why is it so?

The 74th constitutional amendment empowers the state legislatures to impose taxes which aid the municipality's finances. Thus, constitutionally, itis the responsibility ofthe state governments to create avenues for the ULBs to raise resources. Article 243X of the Constitution has recommended thatthe state governments transfer powers to the ULBs for imposing taxes by and funds of the municipalities. This includes:

• Taxes, duties, fees, etc., which could be levied and collected by the Municipalities, as per the procedure to be laid down in the state law.
• Taxes, duties, fees, etc., which would be levied and collected by the state government and a share passed on to the municipalities.
• Grant-in-aid that would be given to the municipalities from the state.
• Constitution of funds for crediting and withdrawal of money by the municipality.