Karnataka is expected to face a revenue shortfall of around Rs 10,000 crore in the current financial year due to the Central Government’s rationalisation of Goods and Services Tax (GST) rates, Chief Minister Siddaramaiah said on Friday while presenting the state Budget for 2026–27. The shortfall is projected to rise to Rs 15,000 crore in the next financial year.

Siddaramaiah highlighted that GST remains the largest source of tax revenue for Karnataka, accounting for 43 per cent of the state’s own tax collections. He noted that the state ranks second in the country in GST revenue generation. However, the unexpected rate rationalisation in 2025–26 has led to a sharp decline in growth, with monthly GST collection growth dropping from 10 per cent to just 4 per cent after the revisions.

The Chief Minister also pointed to broader national trends, saying that GST collections across India are expected to fall short by Rs 1.3 lakh crore in the current year and by Rs 2 lakh crore in 2026–27. He emphasised that these declines in GST revenue disproportionately affect states, as the Centre continues to raise revenue through cesses and other levies that accrue only to the Union exchequer.

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While expressing support for GST rationalisation in principle, Siddaramaiah stressed the need to safeguard state finances. Karnataka, along with seven other states, has submitted a joint memorandum to the GST Council seeking measures to compensate for revenue losses. The Chief Minister also highlighted challenges related to tax devolution, noting that the state suffered an overall loss of about Rs 65,000 crore during the tenure of the Fifteenth Finance Commission.

The Sixteenth Finance Commission has recommended a tax devolution share of 4.131 per cent for Karnataka for 2026–31, an improvement over the Fifteenth Commission’s 3.647 per cent but still short of the 4.713 per cent earlier recommended. Siddaramaiah welcomed the inclusion of a state’s GDP contribution as a factor in determining tax shares, describing it as recognition of Karnataka’s economic performance and growth potential.

Despite these fiscal constraints, the state government has prioritised prudent expenditure management, balancing welfare programmes with fiscal discipline. Siddaramaiah noted that total spending under the government’s guarantee schemes has reached Rs 1,21,598 crore up to February 2026, and the state has maintained its fiscal deficit within 3 per cent of GSDP and total public liabilities within 25 per cent of GSDP, in line with the Karnataka Fiscal Responsibility Act.

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