Siddaramaiah writes to CMs of 8 states on unfair devolution of taxes by Centre

Bengaluru: Karnataka Chief Minister Siddaramaiah on Wednesday said he has written to the Chief Ministers of eight states regarding the “unfair” devolution of taxes by the Union government, and has invited them to a conclave in Bengaluru to collectively deliberate on the issues of “fiscal federalism”.

He said he has written to the Chief Ministers of Kerala, Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra, Gujarat, Haryana, and Punjab.

“States with higher GSDP (Gross State Domestic Product) per capita, like Karnataka and others, are being penalised for their economic performance, receiving disproportionately lower tax allocations. This unjust approach undermines the spirit of cooperative federalism and threatens the financial autonomy of progressive states,” he said in a post on ‘X’ with “#OurTaxOurRight” hashtag.

“I have invited them to a conclave in Bengaluru to collectively deliberate on the issues of fiscal federalism at a juncture when the Finance Commission needs to make a directional shift & create incentives for growth and better tax mobilisation,” he said.

Siddararamaiah has also posted the letter written to CMs of other states on ‘X’.

“As you are aware the 16th Finance Commission has begun its deliberations. The previous Finance Commissions have laid excessive emphasis on equity at the cost of efficiency and performance. As a result, states with higher GSDP per capita and higher contribution to the gross tax revenues of the union are progressively receiving lower shares of the central fiscal transfers,” he said.

Stating that during the visit of the 16th Finance Commission to the State of Karnataka, during 29-30, August 2024, he underscored the need to carefully examine the impact of high emphasis given to equity on resource devolution to well performing states, he said, “I have emphasised that the reduction in central financial transfers to well performing states is placing severe limitations on their ability to invest in physical and human infrastructure.” The taxpayers of states, which are net donors to the divisible pool, also expect a fair share of their taxes to come back to them, he said, adding that the Finance Commission therefore needs to carefully balance equity with efficiency and performance.

Pointing out that states with a strong contribution to the country’s GDP and Gross Tax Revenue, help build the nation in more ways than one, Siddaramaiah said, therefore, there is an urgent need to balance equity with efficiency and performance for a stronger Union, both politically and economically.

“It is, therefore, important that states which are receiving smaller shares in horizontal devolution, compared to their contributions to the Gross Tax Revenues of the Union, need to articulate a coordinated set of proposals before the Commission,” he said.

“It is my pleasure to invite you to a conclave in Bengaluru to discuss these issues further. I will send a separate invitation indicating the dates once we firm up the schedule,” he added.