The Telegraph
Since 1st March, 1999
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Tax hurdle for office on hire
- No takers for priced-out commercial space

Why wait for office space in Calcutta, when the deal can come through smoother, and often cheaper, in coveted commercial destinations down south, up north or far west'

That’s a question confronting several big and medium players seeking square feet in the city centre. Prohibitive rentals, triggered by “an absurdly high” municipal tax, are leading to large built office spaces sitting idle, despite growing demand from space-seekers, led by the likes of software majors IBM and Oracle.

The imbalance, says the City Developers’ Forum (CDF), is as bad as it gets. The cumulative municipal taxes for commercial buildings within the Calcutta Municipal Corporation (CMC) area work out to 53 per cent, while in competitive business hubs like New Mumbai, Bangalore, Pune and Gurgaon the “incidence of municipal tax is around five to 10 per cent only”.

With Calcutta continuing to lose prospective investment to such places, the umbrella body of realtors in town has decided to submit a memorandum to the chief minister, seeking revision in municipal tax, plan sanction fees and stamp duty. “The incidence of municipal tax within the CMC area is the highest not only in the country, but probably in the whole world,” observes CDF president Jugal Khetawat. If for commercial buildings it works out to 53 per cent, for residential buildings it is 45 per cent.

The exorbitant rentals in downtown Calcutta have forced many new-generation IT firms not to look beyond Salt Lake, where the tax structure is much friendlier than in CMC areas, feels Rahul Sharma of Web Development Company, stationed in Sector V of the satellite township. IBM and Oracle’s hunt for space within city limits remains in suspended animation due to the rent roadblock.

CDF says a commercial property costing approximately Rs 1,500-1,600 per sq ft to develop, is available on rent of around Rs 15-18 per sq ft in New Mumbai, Bangalore, Pune and Gurgaon. “That is because the investor is assured of a healthy return of 10-12 per cent per annum on his investment,” says CDF member Pradip Kumar Chopra.

For the same kind of returns, an investor in Calcutta has to charge something between Rs 25 and Rs 30 per sq ft as rent, which international firms willing to set up call centres or BPO (business process outsourcing) set-ups find prohibitive.

“This is the biggest hurdle to setting up big call centres and BPO operations in Calcutta. MNCs are shying away despite availability of quality English-speaking manpower in the city, since the irrational tax structure forces developers to price themselves out of the national market,” says CDF honorary secretary Sushil Mohta.

The developers’ forum will also draw the chief minister’s attention to the “ridiculously high” plan sanction fees (see box).

Mayor Subrata Mukherjee says the civic body is ready to consider a proposal from city developers to restructure levies. “If the municipal taxes here are not consistent with other states, we will look into the matter. However, instructions to this effect usually come from the state administration.”

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