The financing tool, used the world over, is based on the
logic that the govt makes large investments in developing public infra leading
to rapid economic development in those areas and a spike in land prices.
Tax planning:
NEW DELHI: A classic
get-rich-quick scheme for the well-connected is picking up land cheaply near a
new national highway, a railway line or in a smart city before such plans are widely known, then making
a killing as prices inevitably soar. Not for much longer.
The government has decided to implement a value capture financing
(VCF) policy for all infrastructure projects starting April to recover the
premium that public investments generate for private landowners.
“The government has decided VCF to be an integral part of detailed project
report (DPR) of all projects of the central government,” the finance ministry
wrote in a note sent to all ministries and departments. ET has reviewed the
note.
The financing tool, which is used the world over, is based on the logic that
the government makes large investments in developing public infrastructure
leading to rapid economic development in those areas and a spike in land
prices. A VCF policy would mean tapping into this increment through additional
taxes, government-as-realtor and other tools and then using these finances to
fund future infrastructure projects in the same area.
The government has decided to implement such a policy after considering it for
six months and conducting intensive stakeholder consultations. Ministries and
departments will identify the mode by which the VCF policy can be implemented
for every project. Each project proposal put before the Public Investment Board
(PIB) and the Delegated Investment Board (DIB) will contain these details.
“It has been decided that the PIB headed by the secretary (expenditure) as well
as the DIB chaired by the administrative department concerned while appraising
a project of the Central government being implemented in the states, would see
whether the ministry/department piloting the proposal relating to the project
has examined the option of VCF or not,” said the finance ministry note cited
above.
This is the first time a VCF policy has been framed and is being implemented at
the Centre. Though the policy details some financing tools--including land
value increment tax, fee for changing land use from agricultural to
non-agricultural and area-based betterment charges--nothing specific has been
recommended. Each project will be gauged and varied tools can be employed on
the basis of location--urban or rural.
State governments have been employing the financing tool sporadically. The
above policy has been recommended to the states but won’t be mandatory for them
to follow.
Source: EconomicTimes
More will update soon!!
