Karnataka makes tough fiscal pitch for bigger resource share

Bengaluru: Karnataka should retain 60 per cent of what it contributes to the divisible tax pool, Chief Minister Siddaramaiah told the 16th Finance Commission on Thursday, while hammering home the message that supporting poorer states should not come at the “expense” of Kannadigas.

Siddaramaiah said this while submitting Karnataka’s memorandum to the Arvind Panagariya-led 16th Finance Commission, which will cover a five-year period starting April 1, 2026 and decide how taxes are shared between the union and state governments.

Karnataka argued that “extremely high emphasis” on equity would hit well-performing states. “We request the Commission to take a bold view and approach, whereby equity considerations are balanced with sufficient reward for efficiency and performance,” Siddaramaiah said, adding that Karnataka has been central to India's growth story by contributing approximately 8.4 per cent to the national GDP with only about 5 per cent of the population.

“Despite Karnataka's substantial contribution of about Rs 4 lakh crore to the Gross Tax Revenue of the Union every year, the state gets about Rs 45,000 crore in the form of devolution and about Rs 15,000 crore grant-in-aid,” Siddaramaiah said. “This means that for every rupee Karnataka contributes, only 15 paise is returned to the state.”

Siddaramaiah recounted that Karnataka's share in the divisible tax pool dropped from 4.71 per cent to 3.64 per cent under the 15th Finance Commission, which he said caused a loss of Rs 79,770 crore.

“Karnataka has seen a revenue transfer of Rs 35,000-40,000 crore per year to other states, amounting to 1.8 per cent of its GSDP,” Siddaramaiah said. “The figure is astounding because the net transfers outside of Karnataka amount to about 50-55 per cent of the total revenues it generates.”

Such “disproportionate weightage” given to equity penalises “Karnataka and similarly placed states for their good performance, both fiscally and demographically", Siddaramaiah said. “...taxpayers of such states expect their taxes to work for them,” he said, adding that the Commission has a “tightrope walk while balancing equity with efficiency and performance”.

Siddaramaiah said vertical devolution to states should be 50 per cent. He also said that cesses and surcharges should be capped at 5 per cent of gross tax revenue. “Anything exceeding that should be a part of the divisible pool,” he said.

“A strong Karnataka is crucial for a strong India. Seven crore Kannadigas, while being proud of their contributions to the country, have aspirations,” Siddaramaiah said. “They look up to the Commission to advocate a balanced and fair approach to sharing of resources.”