Finance Minister Nirmala Sitharaman has issued a clarification on the Karnataka government's claims of alleged discrimination in sharing central taxes. Sitharaman, in a meticulous rebuttal, addressed claims made by the Karnataka government and accused chief minister Siddaramaiah of propagating ‘outrageously false’ allegations and asserted that the state was not owed any GST compensation.
The protest staged on Wednesday by Congress leaders from Karnataka, spearheaded by CM Siddaramaiah, alleged unfair treatment of the southern state in tax devolution, sparking a contentious dispute between the state and the Modi government.
FM's Clarification on Claim 1: Huge losses suffered by the State due to 15th FC Recommendation
In response to Karnataka's claims of receiving insufficient devolution, the Centre declared the accusations unfounded, citing factual inaccuracies and a failure to acknowledge gains during the 15th Finance Commission (FC) period. Central revenue allocation varies with each commission, which considers factors affecting both states and the central government before making recommendations.
The Centre states, "During the 14th FC’s five-year award period (2015-16 to 2019-20), Karnataka received ₹1,51,309 crore as tax devolution. However, in the first four years of the current FC (15th FC) period, Karnataka would have already received ₹1,29,854 crores by March 2024." The government projected a further release of ₹44,485 crore in the Interim Budget for FY 2024-25, totaling ₹1,74,339 crore in five years.
FM's Clarification on Claim 2: Actual Tax Devolution shared with States by GoI against the FC recommendation
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FM's Clarification on Claim 3: Increase in Cess and surcharge levied by GoI
The Karnataka government's portrayal of undue accruals to the Centre through increased cess and surcharge levied by the Government of India was debunked by the Centre. A significant portion of the cess collection comprises GST Compensation Cess, exclusively for the states' benefit.
FM's Clarification on Claim 4: Loss incurred to the State in Tax Devolution
The Karnataka government's neglect of receival of revenue deficit grants of ₹1,631 crore recommended by the 15th FC was highlighted by the Centre. Additionally, under the scheme "Special Assistance to States for Capital Investment," Karnataka received an amount of ₹6,280 crore from the Centre.
“Apart from the devolution the Government of India in March, 2022 settled an additional amount of ₹2,671 crores due to Karnataka, which has been outstanding from as far back as 1996.”
Karnataka has also received ₹6,196 crores of Central funding towards disaster relief during the 15th FC period so far.
FM's Clarification Claim 5: On GST revenue collection
The Karnataka government's claim of outstanding GST compensation beyond the five-year transition period provided under the GST (Compensation to States) Act, 2017, was dismissed by the Centre. Full compensation for the transition period had been duly released to the state, rendering the claimed amounts inadmissible.
The intensification of this dispute underscores the deep-rooted tensions between the Centre and the Karnataka government, with both sides vehemently defending their positions on tax devolution and fiscal responsibilities.
“Provisional compensation was paid to the State of Karnataka on a bi-monthly basis. As per the AG certificate provided by the State for the five-year transition period from July 1, 2017 to June 31, 2022, full compensation amount of ₹1,06,258 crore was payable which has been duly released to the State,” the central government says.
Govt. of Karnataka has claimed compensation of ₹21,075 crores for the period from July, 2022 to March, 2023 and ₹34,570 crores for FY 2023-24 which are clearly outside the five-year transition period provided under the Act and hence inadmissible, as per the government.
