Karnataka to Form Economic Alliance with Growth-Focused States to Advocate for Equitable Tax Distribution
Karnataka News
In contrast to Kerala, which recently organized a summit involving only five states governed by the Opposition on September 12, Karnataka aims to extend invitations to all states, regardless of the ruling parties. The goal is to forge a national agreement on reallocating a larger share of taxes to those states that significantly contribute to the central revenue pool.

To establish an “economic alliance” with “growth-oriented” states, the Congress-led government in Karnataka has announced plans to convene a conclave focused on discussing how to secure a fair allocation of taxes from the Centre. This initiative comes amid ongoing discussions for the 16th Finance Commission regarding tax distribution.
A two-day conclave is scheduled for the first week of October in Bengaluru, with the primary objective of ensuring equitable vertical and horizontal distribution of taxes to states by the central government.
Who Will Be Invited
In response to the alleged biased approach taken by the Centre regarding the distribution of funds to states that contribute significantly to the central tax pool, the Karnataka government plans to extend invitations to the Chief Ministers of Tamil Nadu, Kerala, Telangana, Andhra Pradesh, Maharashtra, Gujarat, West Bengal, Delhi, and Punjab. These states contribute substantial revenue to the central pool but receive a smaller share in return. The conclave aims to advocate for an increase in vertical devolution from the current 41% to 50% for these states.
Karnataka has been pressing for an increase in the states’ share from 50% to 60%, emphasizing that state governments exert considerable effort in mobilizing tax revenues. Additionally, states are tasked with implementing various social welfare programs aimed at aiding economically disadvantaged groups. “States must invest heavily in infrastructure development,” remarked Basavaraj Rayaraddi, MLA and economic adviser to Chief Minister Siddaramaiah.
Previously, during the Value Added Tax (VAT) system, states maintained their own tax revenue bases and were not reliant on the Centre. However, under the Goods and Services Tax (GST) framework, states find themselves dependent on the Centre, with the 50:50 division ratio proving unfavorable. “We need to reassess this division ratio,” he stated.
The economic adviser, who has spearheaded the initiative to host the conclave, indicated that Mr. Siddaramaiah would invite Chief Ministers from 10 to 12 states for the summit. Subsequently, he and Revenue Minister Krishna Byre Gowda will personally reach out to them, as per Mr. Rayaraddi’s comments.
Unlike Kerala
In contrast to Kerala, which recently hosted a summit with only five opposition-ruled states on September 12, Karnataka aims to invite all states, regardless of the ruling party, to foster a national consensus on tax devolution for states that contribute more to the central tax pool, according to Mr. Rayaraddi.
Karnataka contributes approximately ₹4.6 lakh crore annually but received only ₹50,257 crore, inclusive of grants, from the Centre for the fiscal year 2023-24.
The 15th Finance Commission has reduced Karnataka’s share (horizontal devolution) from 4.71% during the 14th FC to 3.64%. This adjustment means the state stands to lose ₹62,098 crore during the 15th FC period. Karnataka’s objective is to raise its devolution from 3.64% to 5% for the upcoming 16th FC award period. Currently, Karnataka only receives 0.29 paise for every rupee it contributes to the central tax pool, while states like Bihar receive ₹7.06 and Uttar Pradesh gets ₹2.73.
At present, the Centre does not distribute cess and surcharges collected from states. Karnataka has been urging the Centre to include cess and surcharges in the divisible pool. In 2022-23, the Centre amassed around ₹5 lakh crore in cess and surcharges. By not sharing this revenue, Karnataka incurs an annual loss of ₹7,780 crore, according to Mr. Rayaraddi.
“The conclave will serve as a pivotal platform for negotiating the necessity to reform Centre-State financial relationships and to articulate these issues to the 16th FC,” he stated. Experts from relevant fields will also be invited to participate.
On August 29, the 16th Finance Commission, led by Arvind Panagariya, held discussions with the Karnataka government. The award period for the FC will commence on April 1, 2026.