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THEME PAPER

which generates windfall gains
Figure 2: The Value Increment Financing (VIF) Model
in land and property values. The

VIF mechanism aims at
Rs capturing this rise in values
using different taxing

mechanisms. As the value
Revenues diverted for VIF-project increases, the property tax
purposes collection also rises on the
incremental tax base. Also, as
more people shift to the area
New Value because of improved
infrastructure provision, the
Taxable value Existing Value Revenues flow commercial activities increase
Incremental Values
to normal taxing
thus leading to a rise in
bodies after
commercial tax collection. VIF
complete
Revenues continue to flow to normal taxing
increments.
bodies e.g. local authority repayment. captures all such revenue
VIF as a tool for infrastructure
Statutory Life of VIF Project financing has various
advantages. Firstly, it is a
method where the new
taxes on the base value will in Figure 2. development pays for itself.
continue going to the original The proceeds generated from the Secondly, VIF facilitates value-
taxing authorities and the incremental revenue can be used caption and resource-generation,
incremental taxes will go into a to make upfront investments, even when ULBs are not in a
special fund to the development initiating new development position to undertake such
agency and can be used to projects and starting a spiral projects. Thirdly, it enables long-
reimburse the development cost, process of value creation, value term spatial planning and
make additional developments, capture and value recycling funding of planned urban
etc. The incremental revenue is which can lead to sustained development are facilitated.
earmarked either in whole or funding of infrastructure. The Fourthly, it provides an
part to fund the development rise in values arises through equitable approach by spreading
projects. In the case of large implementation of different the cost of the project over
projects, municipal/ infrastructure projects like rail generations and making the
infrastructure bonds can be used networks, expressways, mass beneficiaries pay their share.
to borrow the money for rapid transit, etc. This rise in Fifthly, as the ULBs have to play
development. The incremental value, referred to as “uplift” or an active role in the
revenue can then be escrowed in “increment”, occurs in different implementation of VIF, it makes
the special fund and be used degrees near and around the them accountable and fiscally
over a period of time by the project site. This promotes disciplined. Another major
agency to service the debt further development in the advantage is that the current
incurred for financing. The region, thereby, leading to an fiscal problems of ULBs do not
increment in values is explained increased demand for land act as a blockage to the financing

24 HUDCO-HSMI Publication