GST rate revision: Karnataka stares at Rs 18,500 crore loss; CM writes to PM
Siddaramaiah also urged the Centre to compensate states for this loss and also consider sharing the pan masala cess revenue on a 50:50 basis, as it is a GST-liable item and forms part of the rightful tax share of states
In the wake of the GST rate revisions approved at the 56th GST Council meeting, Karnataka’s finances have taken a major hit.
Highlighting the sharp decline in revenue and the consequent economic strain on the state, Chief Minister Siddaramaiah has written to Prime Minister Narendra Modi, urging the Centre to compensate Karnataka.
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The Chief Minister’s letter details, with supporting numbers, the financial impact caused by tax rate reductions and the growing burden on the state. He has pressed the Union government to offer suitable relief.
Karnataka faces Rs 18,500 crore loss
When GST rate simplification was first proposed, several states expressed apprehension that this would result in a 15 to 20 per cent drop in revenue. Going by the latest numbers, that concern now appears justified. Compared to November 2024, the total GST collection in November 2025 has fallen by 2 per cent. Siddaramaiah notes that, in contrast, the same period last year had recorded a healthy 9.3 per cent growth.
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Karnataka’s GST collections have seen a steep dip. Based on current trends, the state is likely to lose around Rs 5,000 crore this year, with the figure expected to reach Rs 9,000 crore by the end of the financial year. In addition, since the compensation cess has not been merged, the state stands to lose another estimated Rs 9,500 crore. Overall, this means Karnataka’s treasury could take a hit of nearly Rs 18,500 crore, according to the Chief Minister’s assessment.
Demand for sharing pan masala cess
October traditionally sees increased commercial activity due to Dasara and Deepavali. Yet, despite the festive season in October, GST collections registered negative growth — a worrying sign of the broader economic slowdown. The Chief Minister’s letter notes that if this trend persists nationwide, the current financial year could see a revenue shortfall of nearly Rs 1.2 lakh crore.
Meanwhile, the Union government currently levies a cess on pan masala and plans to route the proceeds to states through centrally sponsored schemes. Siddaramaiah has argued that this restricts states’ fiscal autonomy. Since pan masala falls within the GST regime, he maintains that the cess revenue should be shared directly between the Centre and states on a 50:50 basis.
He added that states have supported the Centre’s decisions in the spirit of cooperative federalism, and it is now the Centre’s responsibility to safeguard states’ financial interests. The CM has urged the Union government to compensate the losses arising from GST rate revision and to treat 2024-25 as the base year for calculating relief.
(This article was originally published in The Federal Karnataka)