If the government has its way, there could be hard times ahead for real estate developers speculating on vacant land. The government is finalising a policy that seeks to levy a 2% vacant land tax on unused urban land. The tax component would be calculated on the value of land registered with the respective area development authority. The policy is expected to be announced next week.

It has been observed that builders use land for speculative purposes. They buy land from area development authorities and keep it vacant waiting for real estate prices to escalate. The new policy aims at giving them the boot, as such speculative activities would now attract tax, a highly-placed official at Nirman Bhawan said.

The proposed vacant land tax is modelled on a similar tax in Western countries, including the US. Even before the housing ministry formulated its proposal, Andhra Pradesh had imposed the tax on a pilot basis.

The state has been successful in curbing speculation and ensuring faster infrastructure development through the levy. Soaring real estate prices and an acute housing shortage have been kept under check through the measure.

Under the new policy, if builders fail to start construction on the given land within a stipulated time frame, they would come under the purview of the tax.

It has been proposed that a portion of the collections from the proposed tax would be put by state governments into a fund for provision of basic urban services.

The fund would be incorporated under the governments flagship programme, the Jawaharlal Nehru National Urban Renewal Mission. The policy would act as an incentive to states, who impose the vacant land tax by extending grants under the programme, the official said.

The funds raised through this levy would be utilised for development of sanitation, healthcare, affordable housing, drinking water and solid waste management, the official added.

The Centre is also likely to ask the states to revise upwards the internal and external development charges, development charges, extension charges and betterment levy.

A portion of these collections would also be put into the proposed fund. In some states, development authorities have started levying penalty on real estate developers, who purchase land and leave it vacant beyond a stipulated time period. Greater Noida has levied a similar charge on developers.