One of the much-awaited decision of the government, this year would be the decision on ‘betterment fee’. It is being reported that the ‘betterment fee’ has found favor with country’s top policy makers and could be introduced from the financial year starting April 20117.
What is betterment fee?
A betterment fee is a special charge levied by the government on a property if any significant infrastructure project or comes up in the vicinity of the said property. These projects could be a road project, metro, upcoming industrial zone or a SEZ. Mainly, it covers any important project which would have an incremental effect on property prices. The concept of levying such a charge is also referred to as VCF or Value Capture Finance.
Administrative Authority
While it is the central government which is pushing for this fee, it would not collect or have jurisdiction on betterment fee. The central government in Delhi would only issue guidelines and lay down policy framework for Value Capture Finance. The fees would be collected by local bodies like the Municipalities or Municipal Corporations. This is part of the Centre’s effort to push local bodies to be financially independent and able to raise more revenue for infrastructure upliftment.
The quantum of fee
No details are out yet, as to how would this fee be computed. Most likely, an impact study would be done whenever a project comes up in specified area. The properties which are expected to be benefited from a spurt in demand due to an upcoming project would then be asked to pay a fee on sale or transfer. This would be over any above any stamp duty or other local taxes. It is also not clear yet, as to how these funds would be used.
Impact
The underlying principal of the government’s policy may be that if property owners are reaping rewards on capital appreciation due to key projects being set up in their locale, the government should be given its due. The money thus collected could be used for further enrichment of the micro market where the property is situated.
However, it will make prime properties more expensive even though quick speculation of real estate would be discouraged. As it often happens, investors quickly buy and sell a property where future potential looks promising due to government sanctioned projects. That concept would be discouraged as every time trading is done, an extra fee would have to be paid. Still, the property rates will see a steep rise as purchase price becomes dearer.
