As described in Bihar Municipal Act, 2007 ULBs are required to perform a vast array of functions (obligatory and discretionary) for which adequate financial resources are needed. Municipal revenues are basically of the following types:
Tax Revenue– income through imposition and collection of taxes on items as under the provisions of the Acts in force. All collections such as tax on holding, water tax, latrine tax, tax on the vehicles, tax on the trades, professions, calling and employments, fee on the registration of vehicles kept or used or plying for hire, etc. are sources of tax revenue. Usually property tax is the largest single source of revenue for ULBs.
Non-Tax Revenue – income through imposition and collection of fees for regulatory purpose and for provision of service. Building plan sanction fees, mutation of property fees, rent on shops and buildings, tolls and other fees and charges etc. constitute the main source of non-tax revenue receipts. The difference between tax and non-tax revenue is that tax is a compulsory levy, while fee (non-tax revenue) is a charge made in return for a benefit allowed or conferred.
Grants-in-Aid – A significant element of municipal finance is grants-in-aid. There are two types of grants.
General Purpose Grant: which is intended to augment the revenue of ULBs for discharging their normal functions.
Special Purpose Grant: which is used for specific requirement, such as, education grants, public health, road maintenance, and to meet any unforeseen circumstances etc. Grants are generally ad-hoc and discretionary in nature.
Borrowings and Loans – ULBs can borrow funds in accordance with the provisions of the governing legislations when they cannot afford to meet their expenditure with their existing revenues, including grants received. Bihar Municipal Act, 2007 provides power to levy taxes of obligatory and other taxes by the Urban Local Bodies (ULBs). Subject to the provisions of section 10 of the Act, the Municipality shall have, the power to levy the following taxes:-