Our municipal institutions are revenue-starved. Be it the Karachi Metropolitan Corporation (KMC), towns or the union committees, the problem is the same.

To consolidate finances, the KMC has been pursuing the imposition of municipal utility charges and taxes (MUCT) for some time now. The decision to collect Municipal Utility Charges and Taxes (MUCT) in Karachi is yet to take any concrete shape.

Several weeks ago, the mayor succeeded in passing a resolution through the City Council to move ahead with his idea of engaging Karachi Electric (KE) to collect this levy. The matter has landed in the Sindh High Court. A strong opposition has been voiced by different quarters, especially the opposition ranks in the City Council.

Conversations with ordinary people inform that the current economic recession and the depressing situation do not make it an opportune time to impose any new levy. The citizens are already grappling with the issues of power shutdowns and poor levels of service in water, sewerage and drainage.

Overall inflation that stayed around 40 per cent during 2023 has crippled the life of the ordinary in the metropolis and beyond. It is argued that burdening ordinary folks with another financial charge is grossly unjustified.

The imposition of municipal utility charges is likely to divide the city into ‘have’ and ‘have not’ divisions

People also decry the poor performance of the KMC on many counts. For instance, no intervention has been done to undertake the most vital maintenance works that the metropolis requires. Roads, streets, lanes, water mains, drainage channels, sewerage lines, solid waste management spaces, footpaths, pedestrian bridges, natural water drains (nullahs), traffic signals, green belts, bridges and other components of essential civic infrastructure has completely or partially broken down. While some tasks fall under the control of other civic agencies, KMC is supposed to lead being the premier elected municipal forum of the metropolis.

Our people are often confused between taxation and utility charges. Taxation is a levy imposed by an administration on citizens, institutions or both concerning the fulfilment of certain conditions. Property tax is charged from the owners of immovable property, and motor vehicle tax is collected from users of vehicles in stipulated categories. Each category clearly defines the inclusion and exclusion of user groups according to their respective characteristics.

The important point is that the KMC has taxed a set of public goods which must be freely accessible to all without hindrance. The improved environment is a long-denied right of the people. This argument derives from the fact that this city contributes the highest proportion of direct and indirect taxes to the national exchequer. Thus, a better living environment and the corresponding infrastructure become a matter of right, not a charged privilege.

Our provincial and local administration complain about a lack of financial resources. After the passage of the 18th constitutional amendment in 2010, the provincial share in the National Finance Commission award has significantly increased.

Billions of rupees are transferred to the provincial coffers every year. Sindh also receives a special allocation on account of the abolition of the Octroi and Zila tax. As Karachi accounts for more than one-third of the province’s population, one assumes that a proportional amount would be allocated for shoring up the urban infrastructure and related needs. But nothing of the sort has been done.

Disappointingly, the provincial finance commission, a body responsible for allocating and distributing funds to the districts in the province, remained largely dysfunctional.

Karachi is also the prime location for real estate development, generating billions in value addition. However, the city only collects a paltry Rs2 billion or thereabout in this most crucial tax form.

Property tax is one of the foremost taxes imposed upon urban and sub-urban properties on those owners who are the direct beneficiaries of capital investments and general price escalation of their properties due to multiple factors. Similarly, Rs8.5bn was collected through motor vehicle tax, despite the city reporting registration of over 900 cars/other four-wheelers and over 1,000 motorcycles every day.

Many more challenges will emerge if the KMC receives a go-ahead for collecting MUCT. It is observed that the MUCT is likely to divide the city into ‘have’ and ‘have not’ divisions. The upper- and middle-income localities, commercial areas and posh localities shall be the focus of this levy and perhaps consequent spending.

Unregularised areas, expanding low-income neighbourhoods and peri-urban areas will eventually be left to their own low fates. Pressure from taxpayers will not allow public infrastructure spending to address less privileged locations. High visibility but low relevance projects shall keep evolving around the old contexts. It is already a well-known fact that roads and highways have marginally benefited low-income localities.

Additionally, the conflict of jurisdiction is also an issue which needs to be streamlined. The residents of such neighbourhoods which do not fall under the control of KMC shall continue to get services through varied formats, while the residents in the municipal limits will be burdened with the payments of levies.

The coverage of new levies must consider the nature and scale of users. For instance, road user charges must be revisited, and probably made commensurate with the road development schemes that have been recently built. Benefits to motorists should not be charged to pedestrians or property owners.

It may be noticed that the lion’s share of investment has gone into roads, expressways, flyovers, interchanges and by-passes. In the majority of cases, road widening schemes have deprived pedestrians of the basic right of proper sidewalks. Pedestrian crossings are too few. High velocities of traffic have rendered crossing of streets as prohibitively dangerous.

The status of solid waste management in the city is utterly dismal. Whereas contractual complications did not allow the involvement of a foreign firm in this service, the existing performance of KMC on this count is far below the desirable standard.

Our municipal agencies complain about a low revenue base. This fact merits a review of the recovery of existing levies. The city has enormous potential for revenue generation with respect to property taxes. Under-statement of property values and poor collection practices are only two of the various ailments in this sector.

The water supply in the city is almost free for those who get it from the pipes or those who obtain it through informal means. Though the collection of water charges has improved, it is still below 60pc of the number of consumers. In total contrast, a vast number of consumers obtain it through super expensive water tankers.

No monitoring is done to impose and effectively collect motor vehicle tax from the motor cars and motor bikes which now exist in millions. They are a genuine source of revenue pertinent to motor vehicle tax. Non-utilisation fees on vacant plots are another head that can be explored to its logical end.

Lessons can be drawn from other cities in South Asia. For example, Dhaka generates about 70pc of revenue from own sources. The remaining is obtained from intergovernmental grants and other options.

The KMC must revisit the concept and application of municipal charges. The proposal of new taxation must emanate from the premise of beneficiaries and affectees. Those who benefit must share the cost of investment.

Adequate allocation must be ensured for less developed locations in terms of basic infrastructure. An equalisation fund can be created to establish the mechanism of public spending in less privileged localities.

These types of funds draw a certain percentage of taxes collected from affluent localities to develop less developed contexts. In addition to the exposed components of infrastructure, emphasis must also be given to revitalising underground drains, conduits and pipelines.

The tariff and schedule of charges need to be fixed after a scientific review of the ground realities. Participation of stakeholders can add substantial value to the whole exercise.

The writer is an academic and researcher based in Karachi

Published in Dawn, The Business and Finance Weekly, January 8th, 2024