Karnataka seeks bigger share of central taxes, Rs 1.15 lakh crore for Bengaluru infrastructure

New Delhi: Karnataka Chief Minister Siddaramaiah on Friday requested the 16th Finance Commission Chairman Arvind Panagariya to recommend the support for Rs. 1.15 lakh crore investment to strengthen Bengaluru's infrastructure even as the state demanding a larger allocation from the central tax pool for the five-year period beginning April 1, 2026.

The CM along with state government top officials met Panagariya here and submitted number of requests to be considered while recommending 16th Finance Commission final report to the Centre.

Chief Minister's Economic Advisor Basavaraja Rayareddy, Chief Secretary Shalini Rajneesh, Principal Secretary of Finance Ritesh Singh, and other state officials present in the meeting from state side.

During the meeting, the CM said Karnataka suggested the Commission for replacing discretionary special grants with a formula-based allocation of 0.3% of Gross Union Receipts. However, the State has reiterated its request for grants for Bengaluru and other critical projects if the Commission continues with such provisions.

The state sought support for Rs. 1.15 lakh crore investment to strengthen Bengaluru's infrastructure, given its major role in Karnataka's economy, the CM told reporters after the meeting.

The CM said he stressed the need to bridge regional gaps in Kalyana Karnataka and Malnad region, which face low incomes and poor infrastructures.

In the meeting the CM emphasized Karnataka's pivotal role in India's economic growth contributing nearly 8.7% of the national GDP with just 5% of the population and ranking second in the country in GST collections.

Despite this contribution, the Chief Minister highlighted a stark imbalance in fiscal returns: for every rupee Karnataka contributes to Union taxes, it receives only 15 paise in return. He pointed out that the reduction in Karnataka's share under the 15th Finance Commission from 4.713% to 3.647% resulted in a cumulative loss of over Rs 80,000 crore during the award period.

Karnataka has proposed that the share of taxes devolved to states (vertical devolution) be increased to at least 50%, and that cesses and surcharges be capped at 5%. The State also recommended including Union non-tax revenues in the divisible pool, the memorandum. Said.

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

The overall share allocated to all states from central taxes was reduced to 41 per cent for 2021-26, as against 42 per cent in the previous cycle, primarily due to the creation of Union Territories of Jammu and Kashmir and Ladakh.

This resulted in both a percentage and absolute decline in Karnataka's tax allocation.

The 16th Finance Commission, established in December 2023, is tasked with recommending tax revenue distribution between the central government and states for 2026-31. The commission is currently conducting consultations and must submit its recommendations by October 31, 2025.