The only grounds upon which a lower land price for the local authority’s development programmes could be justified would be when such a development confers external benefits to the society, which does not occur through private development.
Only if the local authorities paid the current market price for development of
Real Estate in Kerala , would the situation be remedied. This could have been achieved by requiring it to hand over to the central government the full amount of the Development Land Tax (DLT) thus saved. This was not envisaged earlier. Instead it was suggested that the sum would be divided as follows: 40 percent to the central government, 30 percent to be retained by the acquiring authority. The latter would still ensure that it enjoyed a pretty hefty price advantage if it decided to develop the land on its own terms and by using its own resources, say for housing or commercial uses.
Indeed, the financial arrangements of the scheme produced a further disadvantageous allocative effect. From what they saved on the DLT element, local authorities were expected to build up a land-account surplus to finance purchases in the future. Obviously, the land-account surplus would be larger if the local authority acquired land where the DLT element was the greatest, that is, where the difference between the market value and the base value was the highest. But base value rested largely on current-use value plus 10 percent or cost of acquisition plus 10 percent.
Two problems therefore arose here:
How are the local authorities going to ascertain the cost of acquisition? This is known to the Board of Inland Revenue, but is regarded by them as confidential information.
The land most suitable for development around towns, e.g. as regards nearness to the center of the town with adequate provision of suitable infrastructure like roads, sewers and schools, tends already to have planning permission or is in the hands of developers.
It was thus ‘excepted development’ as regards the Act. In order to obtain cheap land, which would yield the largest land-account surplus, the local authority would have had to acquire and develop land farther away from the desired land incurring external costs of development. Full social costs would therefore have been higher when the infrastructure costs were called for!
