Hail GST reform or slam it? Karnataka’s Congress govt in a fix

The Congress-led Karnataka government has found itself in a fix over the reformed Goods and Services Tax (GST). It can neither wholeheartedly welcome the reform nor openly oppose it. The opportunity of a political criticism of the Centre’s move has been countered by a technical assessment carried out by its own finance department, which believes the impact on state revenues may not be as severe as feared.

While several Congress ministers in the Siddaramaiah Cabinet have alleged that the reform would leave Karnataka poorer by around Rs 15,000 crore annually and undermine its ability to govern, senior finance officials have sought to downplay the threat, saying the shortfall can be recovered through higher consumption, luxury tax hikes, and stricter revenue management.

On the other hand, some ministers have even welcomed the move, recalling Rahul Gandhi’s call to remove the “Gabbar Singh Tax”. Overall, party leaders on Thursday (September 4) offered mixed reactions to the Centre’s decision.

Also read: GST reforms split Opposition States: Kerala protests, Tamil Nadu cautious

Ministers raise alarm

ITBT Minister Priyank Kharge reminded that the Congress had been demanding GST simplification for nearly a decade. “What was promised as ‘One Nation, One Tax’ turned into ‘One Nation, Nine Taxes’, with multiple slabs ranging from 0 per cent to 28 per cent and special rates of 0.25 per cent, 1.5 per cent, 3 per cent, and 6 per cent. Rahul Gandhi and Mallikarjun Kharge had repeatedly sought an 18 per cent cap, and both our 2019 and 2024 manifestos called for GST 2.0,” he said.

Kharge alleged that under BJP rule, farmers were taxed for the first time, with 36 agricultural goods brought under GST, while essentials such as packaged milk, wheat flour, yogurt, books and stationery were also included. “Nearly 64 per cent of GST revenue comes from the poor and middle class, but billionaires contribute only 3 per cent. To make matters worse, corporate tax has been cut from 30 per cent to 22 per cent. Now that GST has finally been rationalised, the question is how states like Karnataka will be compensated for losses,” he added.

Transport Minister Ramalinga Reddy echoed the concerns, pointing out that Karnataka’s contribution to the Centre was disproportionate to what it received. “We contribute nearly Rs 4.5 lakh crore, but the Centre returns just 13 paise per rupee. Karnataka alone stands to lose Rs 15,000 crore after these changes. The Centre must compensate states if they expect them to function,” he said. He also suggested that the timing of the reform was politically linked, noting, “This may help them in Bihar elections, but for states, it means real losses.”

Excise Minister RB Thimmappur went further, dismissing the announcement as cosmetic. “This is neither a bumper relief nor a genuine concession. The BJP first imposed GST wrongly and now claims credit for reducing it—it is laughable. They have not released our rightful GST dues. They speak in the name of religion but do nothing for real development—not even a single dam has been built,” he said.

Also read: PM Modi hails GST reforms as ‘double dose’ of support and growth

Byre Gowda slams ‘unilateral move’

Rural Development Minister Krishna Byre Gowda criticised the Centre for not consulting state governments. “This decision to reduce slabs was taken unilaterally. If funds are cut, how can any state govern autonomously? We will be reduced to glorified municipalities,” he warned.

Gowda argued that previous rate cuts had not benefited the common man. “When GST was slashed earlier, profits went to companies, not people. Look at cement—prices have risen in the last month because companies anticipated a cut. Our demand is that rationalisation must help consumers, not corporates,” he said.

Another minister, unwilling to be named, admitted that the Congress government was “in a fix—neither in a position to wholeheartedly welcome the reform nor to openly oppose it.”

Also read: Why GST cut is a boost for Indian healthcare: Experts' take

Officials downplay revenue fears

An officer of principal secretary rank in the Finance Department told The Federal that the fears were overstated. “Yes, there could be a Rs 15,000-crore shortfall, but against a Rs 1.2 lakh crore GST target, this is only a 10 per cent dip. It is manageable,” the officer said.

He argued that the reduction of GST on essential goods would boost consumption, thereby expanding collections, while luxury items and tobacco could face higher slabs—possibly up to 40 per cent—which would increase revenue in another way.

The official also highlighted wasteful spending as an area where the state could save money. “Funds allotted for ministerial bungalow repairs, helicopter trips, and the practice of granting Cabinet rank to over 100 people despite having only 35 ministers—these can all be curtailed. Plugging tax leakages is equally important,” he said.

Citing another example, he noted that poor implementation of e-governance in the revenue department had hurt stamp duty and registration earnings. “Instead of the expected Rs 28,000 crore, only Rs 20,000 crore was realised. If this is fixed, the state will not face difficulty,” he added.

Also read: Kerala FM warns of huge GST revenue loss, questions Centre’s silence on compensation

Opposition steps in

Opposition Leader R Ashok sharpened the attack from a different angle, linking the state’s financial woes to its own policies. Referring to the recent comments from industry bodies, Ashok said: “Unscientific guarantee schemes and continuous hikes in power, water, and stamp and registration duty charges have created a hostile environment for industries and investors. Karnataka, once known as an industry-friendly state, is losing its reputation because of the Congress government’s misrule. This has hurt job creation and economic progress.”

He added that even after two-and-a-half years, Chief Minister Siddaramaiah’s government had failed to take off. “Instead of blaming the Centre, the state should correct its own policies and focus on industrial growth,” Ashok said.