Centre may cut Karnataka's tax share by Rs 5,000 cr

Karnataka’s financial position may be adversely affected as the Centre has indicated a reduction of Rs 5,000 crore from the divisible pool of central taxes for 2020-21 fiscal.

Officials in the Finance department who are preparing the state budget say that the feared cut in tax devolution along with the delay in payment of GST compensation of Rs 7,000 crore and funds for other Centrally-sponsored schemes will hamper development work as the state will be left with limited space to make fiscal manoeuvres.

Additional Chief Secretary (Finance) I S N Prasad told DH that the next Union Budget could cut funds devolved by the Centre to the states. This will have a bearing on the state’s budget that is scheduled to be presented on March 5.

“According to officials in the Central government, Karnataka might receive Rs 5,000 crore less when central taxes are devolved to various states,” Prasad said.

The Centre had estimated devolution of Rs 39,806 crore to Karnataka in the February 2019 Union Budget. The amount shrunk by Rs 1,672 crore to Rs 38,134 crore in the July 2019 Union Budget. The same trend is expected by officials of the state government in the upcoming Union Budget.

Of the Central taxes devolved by the Centre, 4.71% is allotted to Karnataka.

Prasad said that decrease in non-GST tax collection due to the ongoing economic slowdown was the reason for the cut in devolution to the states. Commenting on GST compensation to state, he said that two installments were due and the government was awaiting word on when the dues will be cleared by the Centre. While all these will stretch the funds managed by the Finance department, delay in the release of funds for Centrally-sponsored schemes has also affected Karnataka.

For instance, the Centre has to release around Rs 2,700 crore under MGNREGA. Similarly, several Centre-assisted projects under the Rural Development & Panchayat Raj Department, Women and Child Development department and others are also under jeopardy due to the fund crunch faced by the Centre. Karnataka is stretching itself fiscally as it has had to bear much of the expenditure toward flood relief and rehabilitation from its coffers.