Karnataka Chief Minister Siddaramaiah has written to Prime Minister Narendra Modi seeking compensation for losses incurred by the state after the recent GST rationalisation and to protest the Centre’s decision to impose a cess on pan masala despite the item falling under the Goods and Services Tax (GST) bracket with states eligible for a share of the tax.
“The states supported the rate reductions in the larger public interest of easing the burden on citizens and to stimulate economic growth. This was despite the strong apprehensions regarding the potential fiscal shock these measures could create to the states,” he has stated.
According to the Karnataka CM, data now confirms that apprehensions were well-founded and the gross GST collections for November 2025-26 had seen a two per cent decline, compared to a robust 9.3 per cent growth in November 2024.
“For the period from September to November 2025-26 (for the three months affected by rationalisation), the year-on-year growth in gross GST collections has slowed to 3.3 per cent, as against 9 per cent in the corresponding period of the previous year,” Siddaramaiah stated.
“The actual revenue; ie net domestic GST growth rate for the country, has registered a 1.7 per cent year-on-year growth for the three months affected by rationalisation (September to November 2025-26) as against a healthy growth rate of 8.9 per cent in the corresponding period of the previous year,” read the CM’s letter to the PM.
“This is a huge 7 percentage point decline post rationalisation. If the same trend continues for the remainder of the financial year, against an estimated net GST collection of Rs.15.5 lakh crore (10% growth rate as of the previous year), we may register a collection of Rs 14.6 lakh crore, which is a shortfall of Rs 85,000 crore for the current year alone,” the letter stated.
The losses in revenue for the entire financial year could translate into a Rs 1.2 lakh crore shortfall and “the impact on states will be further amplified through a reduction in their devolution share,” the letter read.
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Chief Minister Siddaramaiah highlighted that Karnataka’s GST numbers also reflect the pattern of severe reduction in GST collections. “The state recorded 3.1 per cent growth in net GST collections (September to November 2025-26), and based on current trends, we foresee a revenue shortfall of Rs 5,000 crore this year. For the entire financial year, this translates into Rs 9,000 crore of shortfall,” Siddaramaiah stated.
The losses in revenues for the state would be in addition to a loss of approximately Rs 9,500 crore due to the non-merger of the compensation cess,” the Karnataka CM stated.
“The base year for the revenue collections may be fixed at 2024-25, grossed up for the collections under the compensation cess, as this would reflect the revenue potential of the states,” he has stated.