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The Chief Minister raised concerns over reports that the pan masala cess could be routed through a centrally sponsored health scheme.
Siddaramaiah proposed setting 2024–25 as the base year for calculating revenue. (File)
Karnataka Chief Minister Siddaramaiah has written a letter to Prime Minister Narendra Modi in which he warned that GST rate cuts have created a serious financial strain on states. He said that the new revenue data after the rate rationalisation approved in the 56th GST Council meeting confirmed earlier fears of a “potential fiscal shock”.
He emphasised that while the states supported the rate reductions in the “larger public interest of easing the burden on citizens and to stimulate economic growth”, the resulting fiscal strain is “mainly being borne by the States”.
Quoting the latest figures, the Chief Minister highlighted a major slowdown in national GST collections. He said that the growth of gross GST collection during September to November 2025 has slowed down to 3.3% as against 9% in the corresponding period of the previous year. He claimed that net domestic GST grew only 1.7%, which is a 7 percentage point drop from the earlier 8.9%.
Siddaramaiah said even October- usually a strong month because of Dasara and Deepavali — recorded negative growth. He warned that if this trend continues, the Centre may face a shortfall of Rs 85,000 crore this year, rising to Rs 1.2 lakh crore for the full financial year.
He said that Karnataka’s own financial position reflects this national pattern of “severe reduction”.
“The State recorded a 3.1% growth rate in net GST collection from September to November, and based on current trends, we foresee a revenue shortfall of Rs 5000 crore this year. For 2025-26, this translates into a Rs 9000 crore shortfall,” he said in the letter addressed to the Prime Minister.
“This is in addition to the additional loss of approximately Rs. 9,500 crore due to the non-merger of the compensation cess,” he added.
Siddaramaiah also criticised the Union government’s decision to impose a special cess on pan masala, arguing that it breaks the principle of a unified GST system. He said pan masala is clearly a GST item, and putting a cess on it deprives states of their fair share.
He noted that while states are losing revenue, the Union government will be “revenue-positive” because it can levy excise duty on tobacco and impose such cesses, powers states do not have.
The CM raised concerns over reports that the pan masala cess could be routed through a centrally sponsored health scheme. He said this would limit states’ autonomy because these funds would not be “untied” like normal tax revenue. He urged the Centre to share the pan masala cess 50:50 with states.
The Chief Minister reiterated the state’s demand for the Union to “compensate the states for the loss of revenue caused by rationalisation”.
He proposed that the base year for revenue collections be fixed at 2024-25, “grossed up for the collections under the compensation cess,” to accurately reflect the states’ revenue potential. Concluding on a note of cooperative federalism, he expressed hope that the Union would “reciprocate and ensure that the fiscal interests of the States are protected”.
Click here to add News18 as your preferred news source on Google. December 05, 2025, 23:36 IST
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