CM Siddaramaiah writes to PM, seeks share in pan masala cess as Karnataka stares at revenue shortfall

Bengaluru: Karnataka Chief Minister Siddaramaiah on Friday wrote to Prime Minister Narendra Modi urging the union government to share with the state half of the revenue collected from the proposed cess on pan masala.

Karnataka is already foreseeing a revenue shortfall of Rs 9,000 crore in the current fiscal due to GST rationalisation, Siddaramaiah stated.

"...we had estimated that states would face a revenue loss of 15-20% of their GST receipts owing to the rate rationalisation and the non-merger of the compensation cess into the GST framework," Siddaramaiah stated.

Siddaramaiah said gross GST collections for November 2025-26 recorded a 2% decline compared with 9.3% growth in the corresponding period last year.

"The fact that even the festive month of October, which was characterised by peak consumption from Dasara and Deepavali, showed negative growth signals even more difficult months ahead," Siddaramaiah stated.

Karnataka recorded 3.1% growth in net GST collections (September to November 2025-26). "...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. This excludes the additional loss of approximately Rs 9,500 crore due to the non-merger of the compensation cess," he explained.

The financial strain is being borne by states, Siddaramaiah said, adding that the union government "is likely to be revenue-positive" due to the levy of excise duty on tobacco and cess on pan masala.

Referring to media reports that the union government plans to share the pan masala cess collections with states through a centrally-sponsored health scheme, Siddaramaiah stated: "Such an arrangement would limit states' autonomy as these funds would not carry the flexibility with untied tax revenues."

Siddaramaiah said his government "fully" supports taxing pan masala. But "the imposition of a cess deprives states of their rightful share of revenue".

The CM also asked PM to compensate states for the loss of revenue due to GST rationalisation.

CM reviews targets

On Friday, Siddaramaiah reviewed the commercial taxes department. The commercial taxes revenue target for the fiscal is Rs 1.2 lakh crore.

By November, the state had to collect Rs 80,000 crore. However, the net collection stands at Rs 72,131 crore. This includes Rs 53,522 crore of CGST, Rs 17,595 crore of SGST and Rs 1,014 crore of professional tax.

Siddaramaiah also took stock of excise revenue. Against the target of Rs 40,000 crore, the government has collected Rs 26,215 crore.