Karnataka Seeks Greater Share in GST Revenue and Tobacco Excise Duties
State presents fiscal demands ahead of Union Budget 2026-27
New Delhi, January 11: Ahead of the Union Budget 2026-27, the Karnataka government has made several key demands to the Centre, focusing on state revenue protection, funding for social and rural schemes, and a fairer share of excise duties on tobacco and pan masala.
These demands were presented during the pre-budget consultation meeting chaired by Union Finance Minister Nirmala Sitharaman in New Delhi on Saturday. Karnataka Revenue Minister Krishna Byre Gowda represented the state. As per tradition, the Union Budget will be presented on February 1.
GST Rationalisation Reduces Fiscal Space
Karnataka highlighted that although the state remains a major contributor to national economic growth, its fiscal space has narrowed due to GST rate rationalisation, rising social sector commitments, climate-related shocks, and rapid urbanisation.
The state noted that after the 2025 GST rate rationalisation, revenue growth slowed sharply, affecting its finances. Karnataka requested the Centre to reinstate a revenue protection and compensation mechanism similar to the earlier GST compensation cess.
Demand for 50:50 Share in Tobacco and Pan Masala Taxes
Karnataka has also requested that excise duty on tobacco products and cess on pan masala be shared 50:50 between the Centre and the states. The state argued that it bears healthcare and enforcement costs, while the revenues from these products fall outside the divisible pool.
Pending Payments under Jal Jeevan Mission & Rural Employment
The state reported having released ₹11,786 crore so far for the Jal Jeevan Mission, including advances to avoid delays, and demanded that the Centre immediately release pending dues.
Regarding rural employment, Karnataka urged a reconsideration of the shift from demand-driven MGNREGA to the allocation-based G-RAM-G scheme, noting that the change has reduced effective workdays and placed an additional fiscal burden on the state.
Agriculture, Frontline Workers, and Social Protection
In agriculture, Karnataka proposed implementing the PM-AASHA price deficiency payment scheme for eight crops including maize, soybean, mango, chili, onion, tomato, turmeric, and ginger, and requested additional allocations for 2026-27.
The state also sought increased honorarium for frontline workers: ₹8,000/month for Anganwadi and ASHA workers and ₹5,000/month for cooks and helpers. Further, Karnataka requested an increase in coverage and pension amounts under the National Social Assistance Programme.
Upper Bhadra Project as a National Project
Karnataka repeated its demand to designate the Upper Bhadra Project as a National Project and requested the release of ₹5,300 crore of previously announced central assistance.
