Finance of Kozhikode Municipal Corporation

1. General

      The financial profile of a Corporation is indicated by its capacity to manage funds and mobilize resources.

      Kozhikode Municipal Corporation maintains a corporation fund which constitutes all the cash receipts of the Corporation.  The income of the Corporation consists of own source revenue, assigned and share of taxes, plan and non plan grants from the Government. 

      The receipts and payments of Kozhikode Corporation have been classified under three major heads namely, Revenue, Capital and Debt.     The Revenue and Capital accounts represent the financial standing of this Corporation.  Revenue account contributed about 69% of the total income and seized 68% share of  the total expenditure  during the review period.  Share of capital account in total income and total expenditure was 30% and 31% respectively. bout  83% of the surplus of corporation emerged from the revenueAccount.

FUND FLOW – KOZHIKODE MUNICIPAL CORPORATION

Revenue Account

      Revenue account includes all recurring items of receipts like taxes, fees, charges and payments like salary, pension, repairs & maintenance etc.  It has two components, revenue income and expenditure.  The inflow to revenue account comes from own resources like taxes, rental, charges etc.  and from external resources in the form of assigned and share of tax and grants from government.  A summary of the revenue account from 1997-98 to 2006-07 has been given in table.

Revenue income

      Revenue income shows increasing trend in the range 9.1 % - 17.66% per annum.  The total revenue shows a fluctuating growth. The revenue income of corporation has been classified under own sources, assigned/shares revenue and Government grants.

Own Source revenue

      Components of own source revenue with its related size has been presents in figure. 

1. Municipal taxes like property, tax, profession tax, entertainment tax, advertisement tax etc.
2. Income from building, markets shops, shopping complexes and other properties of corporation.
3. Building permit fee, fees for D&O trade, license for lodge etc.
4. Fines imposed under municipal and other laws.
5. Miscellaneous income.  

 Own source revenue reported compound average growth rate of 5.63 % during the period from 1997-98 to 2006-07.  The growth rate in the year 2005-06 is declining. 

 Corporation expects its own source revenue will grow at a compound average growth rate of 8.53 % in the next twenty years.  The growth is presented in figure.

Property Tax

      Property tax is based on Annual Rental Value (ARV) of property and is the single largest and most elastic source of revenue.  It contributes about 55% to the total revenue income.  The ARV is calculated by considering the nature of use.  That is, residential or commercial, and most of building and land.

      Property Tax has registered a compound average growth rate of 8.57% in the review period.  Revenue from property tax of Kozhikode Corporation has increased to Rs 911.32 Lakhs in financial year 2006-07 from Rs 400.61 lakhs in the financial year 1997-98. 

Profession  Tax

      Profession Tax is the second largest item in own source revenue.  Kozhikode Corporation  is collecting profession tax from employees of government and private offices and other institutions.  The amount of tax varies depending up on the half yearly income of employees.

      Kozhikode Corporation has plan for widening the base of profession tax.  In addition to offices and institutions, other establishments like jewellery, hotels shops etc. and self practicing professionals can be brought under tax cover.  The average annual growth rate in the last years of review period was nearly 38.27. With the above modified steps Kozhikode Corporation is able to achieve a compound average growth rate of 31.89% in the projected period.

Other items of own source period.

Entertainment Tax :- 

      During the past ten years entertainment tax shows compound average growth rate  0.47%. The dismal growth is mainly due to irregular demand and collection and lack of system for monitoring the collection.  The collection of tax was maximum in the year 2004-2005.

Advertisement Tax :-

      Comparing to other revenue the volume of advertisement tax is low.  It has reported compound average growth rate 7.24% in the review period.  The collection of tax was maximum in the year 2003-2004.

Receipts from Municipal Properties :-

      Rent and other charges collected from the properties of Kozhikode Corporation falls under this head.  The properties of Kozhikode Corporation include buildings, community hall,  schools, markets comfort station, shopping complex, slaughter house, hospital, ice plant etc.

Municipal Fees :-

      Kozhikode Corporations is collecting license fees for D & O trade,  building constructions, running lodges, Construction of factories, installation of plant and machinery etc.

Other Items :-

      The other sources of revenue of Kozhikode Corporation include show tax, fines, penalties etc.

Receipts from Municipal Properties

      By  exploiting the  commercial potential of unutilized and under utilized properties. Kozhikode Corporation can generate additional revenue from its properties.Kozhikode Corporation can enhance the potential of revenue collection by exploiting  parking area, building, land shops, shopping  complexes etc.  A nominal fee for the usage of properties of Kozhikode Corporation which are now used free of cost.  Will generate a countable revenue. Compound average growth rate  is expected from the municipal properties in the next twenty years.

Municipal Fees

      Revision of rate of fees and charging fees  based on income slab of the payee will generate additional revenue to the Kozhikode Corporation by way of municipal fees,  In the next twenty years compound growth rate     can be expected  in this revenue.

Assigned and Shared Revenue

      Assigned and shared taxes  comprise of transfers from state government.  Transfers are in the form of corporations share of share of taxes levied and collected by the state government from the establishment/ operations within the corporations limits.  Surcharge  on stamp duty and vehicle tax compensation are the major items under this head.  The flow of assigned and shared revenue to the revenue account was uneven during the review period.

Government Grants

      Government grants classified under revenue account consists of non plan grant for general and specific purpose, maintenance grant and grants for running institutions transferred from government,  There was no regular inflow of fund by way of grants during the review period.

Revenue expenditure

      Revenue expenditure of Kozhikode Corporation is nearly 217% more than capital expenditure.  Revenue expenditure of Corporation is broadly classified under the following heads :-

General management and collection of taxes

1. Public works
2. Town planning
3. Education
4. Water supply and drainage
5. Public health and sanitation
6. Street lights
7. Municipal properties
8. Running expenses of transferred institutions
9. Miscellaneous expenses

      Management & collection of taxes, public works and public health and sanitation hold substantial part of the revenue expenditure.  These items together total revenue expenditure.  Street lights and running expenses of transferred institutions incur each in total revenue expenditure. 

Revenue account

      Kozhikode Corporation has consistently maintained revenue surplus during the period from 1988-90 to 2006-07. Revenue surplus of Kozhikode Corporation  has been increased from Rs 56.07 laksh to Rs 343.26 lakhs during this period with compound average growth rate 22.30%.

Capital account

      The capital account deals with the non recurring receipts and payments of the corporation. 

      The deficit in capital account was met by the revenue surplus for that year and accumulated revenue and capital surplus. 

Capital Receipts

      Capital receipts came mainly in the form of grants released by Government for implementation of specific schemes and projects. 

Capital Expenditure

      The corporation classifies capital expenditure in the following heads.

1. Management
2. Municipal development
3. Education
4. Water works and drainage
5. Public health
6. Street lighting
7. Endowment
8. Poverty eradication
9. Kerala development project
10. Transferred institutions

       The major portion, 76.72% of the total capital expenditure was spent for plan schemes under Kerala Development  Project during the review period.  Next largest expenditure was for management and collection and it was about 13.38% of the total capital expenditure.  Plan scheme expenditure was 9.85% and other components  in aggregate were 0.05%.

Debt account

      Debt account includes receipt and payment of deposits  and advances, collection and payment of library cess, pension and PF allotment from  government, contribution paid to pension and PF etc.

Revenue Realization

      Kozhikode Corporation is able to generate revenue from its own sources without depending on government grants, merely to meet the total revenue expenditure.  Own source revenue combined with the government grants gives to surplus to revenue account.  However there are potential for enhancement of revenue collection. 

Collection  efficiency in tax.

      There were redeployment of the entire staff for organizing ward level meetings preparation of project plans and compilation of annual plans as stipulated  in the guidelines issued by government under the decentralized planning process.  The staff untrained to take up this task under the people’s planning campaign and preparation of participatory plans was regularly trained for this purpose.  Now the system of decentralized planning process has been regularized.  Kozhikode Corporation is now in a position to strengthen its regular functions.  It is expected that with energized tax collection process. Kozhikode Corporation would be able to enhance the collection of its demanded tax.