Karnataka government claims of discrimination in sharing central taxes wrong, mischievous: Centre

New Delhi [India], February 7 : The central government has said that the claims by the Karnataka government of discrimination in sharing central taxes are patently wrong and mischievous.
There are factual errors, false monetary claims, misleading statements, and selective mention of certain losses allegedly suffered without mentioning the gains that have accrued to the state in the 15th Finance Commission (FC) period, the central government said.
Currently, the devolution of States' shares is done as per the recommendations of the 15th Finance Commission (FC). The 15th FC submitted its final report in October 2020, and the government laid the Explanatory Memorandum as to the Action Taken on the Recommendations of the Commission in February 2021. The award period of the 15th FC is from 2020-21 to 2025-26.
The share of each State in sharable central revenues fluctuates from Commission to Commission. Each Commission makes recommendations in its wisdom considering all the factors affecting various States and the Centre and with wide consultations with State Governments.
During the 14th FC's five-year award period (2015-16 to 2019-20) Karnataka received Rs 1,51,309 crore as tax devolution. However, in the first four years of the current FC (15th FC) period, Karnataka would have already received Rs 1,29,854 crores by March 2024.
The Government of India has projected a further release of Rs 44,485 crore in the Interim Budget for 2024-25 taking the total to Rs 1,74,339 crore in five years. This is higher than the 14th FC period despite the precipitous drop in revenue during the COVID-19 period, the government said.
In short, despite the exceptional circumstances arising from the pandemic, which depressed central revenues, the Government of Karnataka will be getting substantially more as devolution during the first five years of the 15th FC period than in the 14th FC period.
To inflate its false claim of losses, the government of Karnataka has even included shortfalls for the next two financial years, namely 2024-25 and 2025-26. Its figures of the actual tax revenue percentage shared with States have been presented without any calculation details and appear to be imagined.
Even according to these baseless figures asserted by the Karnataka government, the actual tax devolution percentage has increased since 2015-16, contradicting the claim of mistreatment by the Centre.
The central government also pointed out that the Karnataka government has sought to portray undue accruals to the Centre through an increase in cess and surcharge levied by the Government of India in a deliberately misleading manner, by omitting to mention that a large part of the Cess collection comprises GST Compensation Cess.
This Cess does not belong to the Centre and goes entirely for the benefit of the States. For instance, out of a total of Rs 4.81 lakh crores of Cess and Surcharge collections in FY 2021-22, an amount of Rs 1,04,769 crores was towards Compensation cess which was released exclusively for the States.
In addition, the Karnataka government has chosen to ignore the fact that it has received a revenue deficit grant of Rs 1,631 crore recommended by the 15th FC, the central government pointed out.
Similarly, Kerala, another southern state, has received revenue deficit grants based on the recommendation of the 15th FC. However, other states such as Uttar Pradesh, Madhya Pradesh, Gujarat and Bihar did not receive any revenue deficit grant whatsoever.
The selective reference to devolution and ignoring grants is mischievous and unfair to the non-partisan expert Constitutional body, that is, the Finance Commission, the central government said.
Apart from the devolution the Government of India in March 2022 settled an additional amount of Rs 2671 crores due to Karnataka, which has been outstanding from as far back as 1996. This was part of a settlement of Rs 81,470 crores to all States for arrears left behind by governments before 2014.
The Karnataka government has also chosen to ignore substantial additional funds provided by the Government of India voluntarily beyond what is recommended by the FC.
Under the scheme "Special Assistance to States for Capital Investment" which envisions a 50-year interest-free loan Karnataka has been provided an amount of Rs 6,280 crore by the Government of India.
Karnataka has also received Rs 6,196 crores of central funding towards disaster relief during the 15th FC period so far.
The government of Karnataka has made a blatantly false statement as though Rs 1.65 lakh crores is due as GST compensation. It has ignored the fact that the Compensation arrangement in GST was for five years.
The compensation to the States for GST is provided under GST (Compensation to States) Act, 2017. As per this Act, compensation is payable for a five-year transition period starting from the GST implementation date which is July 1, 2017. It is payable upto June 30, 2022. State is eligible to get compensation only for these five years, the central government said.
Provisional compensation was paid to the State of Karnataka on a bi-monthly basis. The State submitted AG certificates for each of the years certifying the final compensation due.
As per the AG certificate provided by the state for the five-year transition period from July 1, 2017 to June 31, 2022, a full compensation amount of Rs 1,06,258 crore was payable which has been duly released to the State.