Bengaluru: In a two-page letter, chief minister Siddaramaiah has expressed concern over the substantial reduction in Karnataka’s share of tax revenue, as proposed by the 15th Finance Commission. (PTI)

Karnataka chief minister Siddaramaiah, has written to Union finance minister Nirmala Sitharaman, urgently requesting the immediate release of Special Grants and State Specific Grants for the state.

In a two-page letter, chief minister Siddaramaiah has expressed concern over the substantial reduction in Karnataka’s share of tax revenue, as proposed by the 15th Finance Commission.

This allocation has been slashed to 3.647% from the total pool of funds available for distribution among states. This significant decrease, spanning the years from 2020 to 2026, starkly contrasts the prior allocation of 4.71% advised by the 14th Finance Commission.

This change has been attributed to changes in the methodology of sharing, resulting in a diminished financial share for Karnataka.

According to the letter, the new calculation methods have inflated Karnataka’s economic size resulting in a notable decrease in Karnataka’s financial allocation. The implementation of the new approach in calculating the Gross State Domestic Product (GSDP) has disproportionately inflated Karnataka’s GSDP in the 2011-12 series by over 30%. This is in contrast to the average increase of less than 9% observed across all states.

“The reduction in tax devolution share to Karnataka by the 15th Finance Commission, compared to the recommendation of the 14th Finance Commission, has resulted in a decrease of ₹ 37,011 crores in total tax devolution to the state over the past four years, from 2020-21 to 2023-24,” stated Siddaramaiah in the letter.

It addressed the inequity in accounting for IT-related services’ contributions to Karnataka’s economy. Despite the significant impact of these services on the GSDP, their corresponding contribution to state taxes has not been properly acknowledged. This is because the exports of IT services are exempted from taxes. The letter also stated the severe impact of the reduced tax devolution on the state’s financial landscape, which resulted in a substantial decline of ₹37,011 crore between FY 2020-21 and FY 2023-24.

Chief minister Siddaramaiah highlighted the unmet recommendations of the 15th Finance Commission regarding Special Grants and State Specific Grants. Despite the suggested allocation of ₹5,495 crore for Special Grants in 2020-21 and ₹6,000 crores for specific projects, these grants remain outstanding. This delay has further strained Karnataka’s already precarious fiscal situation.

Siddaramaiah reminded the central government that the 15th Finance Commission’s final report for 2021-26 had earmarked state-specific grants of ₹6,000 crore for Karnataka’s “holistic improvement of water bodies in Bengaluru and for the peripheral ring road.” However, despite the assurance, these grants have yet to be disbursed, compounding the state’s financial challenges exacerbated by reduced tax devolution.

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