Siddaramaiah flags ‘stark imbalance in returns’, seeks higher central tax pool share

The overall share allocated to all states from central taxes was reduced to 41% for 2021-26, as against 42% in the previous cycle, primarily due to the creation of Union Territories of Jammu and Kashmir and Ladakh. Siddaramaiah demanded a larger allocation for the state from the central tax pool for the five-year period beginning April 1, 2026.

According to the statement, Karnataka “proposed that the share of taxes devolved to states (vertical devolution) be increased to at least 50% (from April 1, 2026), and that cesses and surcharges be capped at 5%”. “The state also recommended including Union non-tax revenues in the divisible pool.”

“For sharing funds among states (horizontal devolution), Karnataka suggested that each state retain about 60% of what it contributes, with 40% going to less-developed states, ensuring both growth and equity,” it said.

Siddaramaiah told the Commission that “to make the formula fairer, Karnataka has proposed reducing the weight of the income-distance criterion and giving more weight to a state’s economic contribution, so that high-performing states are not penalised, but encouraged,” said the statement.

The state also called for “critical reforms” to make the fiscal devolution system “more growth-oriented, predictable, and fair” and highlighted three “key issues” — the growing disparities in per capita devolution; the flawed design of revenue deficit grants, and the unpredictable nature of state-specific grants.

During the meeting, the CM told the Commission that the state recommends replacing discretionary special grants with a formula-based allocation of 0.3% of Gross Union Receipts.

The CM also sought support for Rs 1.15 lakh crore investment to strengthen Bengaluru’s infrastructure, given its major role in Karnataka’s economy, said the statement.