What is Land Value Capture Policy? (Download PDF)

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Value Capture as practiced widely in the world is based on the principle that private land and buildings benefit from public investments in infrastructure and policy decisions of Governments (e. g. change of land use or FSI).

Image of Three-Stage Value Capture Process

Image of Three-Stage Value Capture Process

Image of Three-Stage Value Capture Process

  • Appropriate VCF tools should be deployed to capture a part of the increment in value of land and buildings, which can be used to fund projects set up for the public by the Central/State Governments and ULBs.

  • Generates a virtuous cycle in which value is created, realized and captured, and used again for project investment.

  • As the additional value is generated by actions other than landowner’s direct investment, Value Capture is distinct from the user charges or fees that agencies collect for providing services.

What is VCF Policy Framework?

  • VCF Policy Framework was developed as essential document to enlighten States and Union Territories with the concepts and mechanisms at the local level to enhance financial strength and provide better infrastructure.

  • Framework also provides guidance note on one of the VCF tools – Impact Fees to highlight the practical aspects of implementing impact fees.

Need for VCF

  • Adopting innovative fiscal tools such as Value Capture Finance (VCF) mechanisms by States and Union Territories is an important procedure in improving the financial health of municipalities across the country.

  • Currently, the municipalities receive a fair share of handholding support in the form of revenue and grants from the State as well as Central Governments, but are still struggling to meet their fiscal needs.

  • A burgeoning urban population has also resulted in increased demands from the population for provision of services and amenities.

  • VCF mechanisms strengthen and augment the fiscal resources of local bodies to increase their financial autonomy and delivery of quality infrastructure for the benefit of the public.

Enforcement of VCF

  • While appraising projects of the Central Government implemented in the State, the Public Investment Board (PIB) and Delegated Investment Board (DIB) ensure that option of using VCF has been considered and examined in the DPR.

  • Details of the estimated amount and the mode of such VCF should be clearly brought out in the PIB/DIB meeting.

Image of Enforcement of VCF

Image of Enforcement of VCF

Image of Enforcement of VCF

What is Impact Fees?

  • Impact fee is one of the most widely used value capture methods worldwide.

  • Impact fees are charges assessed against new development to cover the cost of providing capital facilities needed to serve the development based on the premise that new development should pay the costs associated with growth.

  • In addition, the system is just as the existing residents should only bear the costs of improving existing services- not for new development.

  • Impact fees meets the increasing demands from growth by financing facility improvements, i. e. a proportionate share of the cost of new facilities is borne by those who create the demand for new or additional facilities.

  • Impact fees can be used by the Ministries, Departments, or Agencies of the Government of India for development of roads and highway, water supply and sewerage, parks and open spaces, solid waste management

  • Should not be used for operational expenses or to pay the capital improvements to correct an existing deficiency or shortfall.

  • Simplicity in design, implementation, adoption, and charge makes them preferred VCF tool.

  • Impact fee is typically levied annually for a longer time. The calculated impact fees are not a one-time payment in the future but, rather, annual payments- a common cut off point is twenty years.

Other VCF Methods and Scale of Intervention

Table Contain Shows Scheme the VCF Methods and Scale of Intervention

Table Contain Shows Scheme the VCF Methods and Scale of Intervention

S. No

Value Capture Method

Frequency of Incidence

Scale of Intervention

1.

Land value tax

Annual rates based on gain in land value uniformly

Area-based

2.

Fees for changing land use (agricultural to non-agricultural)

One-time at the time of giving permission for change of land use

Area/Project-based

3.

Betterment levy

One-time while applying for project development rights

Area/Project-based

4.

Development Charges (Impact fees)

One-time

Area-based

5.

Transfer of development Rights

Transaction-based

Area/Project-based

6.

Premium on relaxation of rules or additional FSI

One-time

Area (Roads, railways) /Project (Metro)

7.

Vacant land tax

Recurring

Area-based

8.

Tax increment financing

Recurring and for a fixed period

Area-based

9.

Land Acquisition and Development

One-time upfront before project initiation

Area/Project-based

10.

Land pooling System

One-time upfront before project initiation

Area/Project-based

- Published/Last Modified on: December 6, 2017

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