Karnataka Revenue Minister Krishna Byre Gowda said the state was dissatisfied with the 15th Finance Commission's treatment of Karnataka, citing a significant financial loss due to the Union's collection of cess and surcharge. Speaking at the "Conclave of Finance Ministers" organised by the Kerala government in Thiruvananthapuram, Gowda called for capping cesses and surcharges at 5 %, with any amount above that becoming part of the divisible pool.
"Last year, Karnataka lost around Rs 53,000 crore owing to Cess and Surcharge collected by the Union. Hence, we have recommended a 5% cap on cess and surcharge. Any cess and surcharge collected beyond that should be made part of the divisible pool," the Revenue Minister said.
He said that while the state comprises 5% of India’s population, it contributes 9.54% to the national GST pool and around Rs 4.5 lakh crore in taxes annually. He urged that any collections beyond the 5% cap should be redistributed to states, arguing that Karnataka, despite its substantial contribution to the Union tax pool, only receives a fraction in return. For every Rs 100 Karnataka contributes, he said the state only receives around Rs 15, while other states receive far more for the same contribution.
“However, some states that contribute Rs 100 as tax to the Union are getting Rs 300 as Union allocation. We are the gooses that lay the golden eggs. Even then we are only demanding a marginal increase of 20 to 25 % in return of the total contributions we make,” Krishna Byre Gowda said.
Byre Gowda criticised the 15th Finance Commission for reducing Karnataka's share of tax devolution by 23%, while other states such as Kerala received revenue deficit grants. He also pointed to the Union government’s use of cesses and surcharges, which are not shared with states, as another factor reducing the funds available for devolution. The minister estimated that Karnataka loses between Rs 20,000 and Rs 22,000 crore annually due to the implementation of the Goods and Services Tax (GST).
He proposed that either the 16th Finance Commission ensures that at least 60% of a state’s tax contribution is devolved back to it or allocates 25% of the divisible pool based on states’ performance and efficiency. He said that penalising states for their good performance by not granting them their fair share of funds discourages further progress, while continually rewarding poor-performing states without conditions creates a harmful incentive to remain stagnant.
The conclave in Thiruvananthapuram was attended by finance ministers from Telangana, Tamil Nadu, Punjab, all voicing concerns over the Union government’s fiscal policies.
Karnataka Chief Minister Siddaramaiah has also invited chief ministers of Kerala, Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra, Gujarat, Haryana, and Punjab to a similar conclave in Bengaluru focusing on the unfair devolution of taxes by the Union government.
“I have invited them to a conclave in Bengaluru to collectively deliberate on the issues of fiscal federalism at a juncture when the Finance Commission needs to make a directional shift and create incentives for growth and better tax mobilisation,” the Chief Minister said.