Karnataka, which is under fiscal stress, is likely to see a cut of Rs 9,000 crore in its share of devolution of Central taxes, which will burden it, while preparing its own 2020-21 budget on March 5.
On Saturday, top officials of the Finance department got into a huddle to dissect the Union Budget and it was concluded that Karnataka’s share in the divisible pool of Central taxes will decline significantly.
Although officials are yet to get clarity on the exact reduction, Additional Chief Secretary (Finance) I S N Prasad said the state will get about Rs 9,000 crore less. The cut could also be as high as Rs 11,000 crore, officials fear.
DH had reported, in its January 4 edition, that the Centre might cut the state’s share of Central taxes by Rs 5,000 crore.
Devolution of Central taxes is key for the state government to prepare its budget estimates for the 2020-21 fiscal. Whatever the state gets in its share of the Central taxes in the 2019-20 fiscal will be used to plan for the 2020-21 budget.
But if the state’s share is reduced, then Chief Minister B S Yediyurappa, who is also the finance minister, will have to look at ways to mobilise funds to make up for the shortfall. This could mean re-prioritising expenditure that might impact developmental programmes. The state is already stretched fiscally, while having to deal with the August 2019 floods. Besides, several revenue-generating departments are way behind their target for the current fiscal.
All states are to get 42% of Central taxes, as recommended by the 14th Finance Commission. The 15th Finance Commission, however, has recommended cutting devolution by one percentage point, to 41%.
The Centre had estimated Rs 39,806 crore to be devolved to Karnataka in the February 2019 Union Budget, which was reduced by Rs 1,672 crore to Rs 38,134 crore in the July 2019 Union Budget.
According to sources in the Finance department, there is no clarity on the final amount that will be sanctioned to the state government. “The 15th Finance Commission has proposed a new formula for devolution of taxes. But the formula is not in public domain yet,” an official said, adding that the state’s share in devolution might come down from 4.7% to 3.7%.
Meanwhile, there are also concerns that the share of GST compensation for Karnataka might see a reduction due to poor collection by the Union government.