Lower GST Growth: CM Urges Centre to Compensate States for Loss of Revenue
In a significant development during the 56th GST Council meeting, Chief Minister Siddaramaiah expressed cautious optimism regarding the recently announced reduction of GST rates. However, he highlighted a concerning trend in the fiscal performance of India’s Goods and Services Tax (GST) collections. According to Siddaramaiah, the growth of gross GST collection from September to November 2025 has dramatically slowed down to just 3.3%, compared to a robust 9% during the same period the previous year. This decline follows the rationalisation of tax rates, which may have unintended consequences for state revenue.
Acting in Faith
In a formal communication addressed to Prime Minister Narendra Modi, CM Siddaramaiah emphasized the unwavering commitment of the states to act in good faith, adhering to the principles of cooperative federalism. He noted that states have accepted the Centre’s proposals for tax rationalisation in their entirety. Despite this collaborative effort, Siddaramaiah urged the Centre to provide compensation to Karnataka to mitigate the financial strain resulting from revenue loss.
The Chief Minister elaborated that the actual net domestic GST growth rate across the country during the three-month period affected by tax rationalisation registered only a 1.7% year-on-year growth. This is a sharp contrast to the healthy 8.9% growth rate seen during the same period last year, marking a staggering 7% decline post-rationalisation. He warned that if the present downward trend continues, it could lead to a significant shortfall in evaluated GST collections. Siddaramaiah projected that out of the estimated net GST collection of ₹15.5 lakh crore, which assumes a 10% growth rate based on last year’s performance, Karnataka could potentially see its collection drop to ₹14.6 lakh crore—resulting in an alarming shortfall of ₹85,000 crore for the current fiscal year.
Severe Reduction in State Revenues
The distressing trend in overall GST growth is mirrored within Karnataka, where the state recorded a dismal 3.1% growth rate in net GST collection from September to November. Siddaramaiah warned that based on current economic indicators, the state could face a revenue shortfall of ₹5000 crore this year alone. For the fiscal year 2025-26, the shortfall could escalate to an anticipated ₹9000 crore, raising serious concerns about the state’s financial health and its ability to deliver on development projects and welfare initiatives.
Additionally, the Chief Minister pointed out that these figures do not account for an essential factor—the estimated loss of approximately ₹9,500 crore due to the non-merger of the compensation cess, which could further aggravate the fiscal pressure on the state. Siddaramaiah’s appeal to the Central government underscores the urgent need for a collaborative approach to ensure that states are not left to bear the brunt of revenue losses, especially during periods of economic adjustment.
