Karnataka Revenue Minister Says India's 'Cash Cow' Deserves Fairer Tax Share — Exclusive

Speaking to NDTV Profit exclusively in the heart of the national capital, Krishna Byre Gowda, the Minister of Revenue for Karnataka, highlighted that the "continued distress to southern states is causing fissures in the national unity," as the state has lost out on a proportionate increase in the share of central taxes and projected revenue after the implementation of GST.

The protest follows an ongoing demand to increase the share of revenues devolved to the southern states. This comes at a time when the newly constituted 16th Finance Commission, headed by Arvind Panagariya, former Vice Chairman, NITI Aayog, is expected to make its recommendations available by Oct. 31, 2025, covering an award period of five years commencing April 1, 2026.

The chief concern highlighted by the Karnataka minister is that the state's essential needs are being neglected. However, Karnataka supports the income-distance criteria, where states with lower per capita income are given a higher share of revenue in an attempt to offer a level playing field to all.

"We are for cross transfers; you can call it cross transfers or cross subsidies... We are for some states like Karnataka getting less and other states getting more than Karnataka, proportionately speaking," Gowda said.

"Nevertheless, we are also demanding that you take care of our essential needs. That has been our demand. We contribute so much; we are the cash cow for the country, be it forex earnings, tremendous IT BT exports and direct investments. A place like Bengaluru is a brand for India. So, for all these reasons you must take care of your cash cow."

As per the 15th Finance Commission, the central government will share 41% of its central tax pie with states through 14 monthly instalments. Gowda argues that, in reality, only 30% of the gross tax revenue of the central government is being shared with states.

The state of Karnataka has alleged that it has been losing over Rs 50,000 crore in revenue annually due to the disproportionate allocation of resources. This figure includes losses on account of tax devolution, projected revenue prior to GST rollout, and the central government's increasing reliance on cess and surcharges.

On account of a 25% cut in tax devolution, as per the latest Finance Commission's allocation, the state loses about Rs 15,000 crore every year, Gowda said.

The state, prior to the implementation of the Goods and Services Tax, experienced a tax growth rate of 14–16%, which is now down to 8–9%, he said.

"...left to our own devices, we were increasing our own revenue by 14–16%. After GST, we were assured a protected revenue of 14% growth and this was not a largesse provided to Karnataka because we were growing at 14–16% YoY. Now, subsequent to the introduction of GST, our growth rate is around 8–9%. So, if you project Karnataka's protected revenue and the actuals, there is a difference of Rs 30,000 crore every year," he said.

Substantiating the figure with his estimates, he said that with the end of the GST compensation assistance sans extension, Karnataka is losing Rs 20,000–30,000 crore every year.

Terming it as "legal maneuvering," the minister said that the third chunk of revenue loss was emerging from the conversion of a few taxes into cess and surcharges.

"The net effect is that the consumer pays the same amount but the revenues go exclusively to the central government because cess and surcharges are not shared with the states... Converting an existing tax into a cess and surcharge is only meant to deprive states of their constitutional share in the central revenues. This is the only conclusion," he said.

The minister added that the state has not received funds owed on account of two specific grants to Karnataka, according to the 15th Finance Commission's recommendations.

"Together, they account for Rs 11,495 crore... My question is, Why has the Rs 11,495 crore recommendation of the Finance Commission not been released to Karnataka?"

This refers to a special grant of Rs 5,495 crore for the state in the interim report, and additional Rs 6,000 crore in the final report for the development of water bodies and peripheral ring road, according to the minister.

The minister said that a budgetary grant of Rs 5,300 crore towards the upper Bhadra drinking water project in the drought-prone central Karnataka is pending, despite repeated requests from the state government to release the money or at least approve the funds. 

He also referred to a memorandum submitted on the subject for drought relief under the National Disaster Relief Fund on Sept. 23, 2023 which he said didn’t receive a response.