Chief Minister BS Yediyurappa said that the Karnataka government is facing a financial crisis like never before. The Chief Minister laid out the myriad reasons for fall in revenue ranging from the 15th Finance Commission’s recommendations on tax distribution to lack of adequate GST compensation.

Karnataka generates revenue from the state’s own taxes, non-tax revenue, share of Central taxes and grants from the Central government. However, in the 2019-20 fiscal, Karnataka’s share in central taxes dropped drastically as per the Centre’s revised budget estimates, BS Yediyurappa said in the Assembly on Thursday.

The reduction in the state’s share in central taxes has amounted to Rs 8,887 crore. Apart from this, Yediyurappa announced that Rs 3,000 crore GST compensation was also reduced in the previous fiscal.

“It has become difficult to reach the 2019-20 budget targets due to these reasons. To manage this situation within the bounds of the Karnataka Fiscal Responsibility Act, an inevitable situation has arisen this year to cut down the expenditure of many departments. We have never witnessed such financial crisis as we have this year,” he said.

As per the interim report submitted by the 15th Finance Commission, the state’s share in central taxes dropped to 3.64% as opposed to the allocation of Rs 4.71% fixed by the 14th Finance Commission. This has cost the state government an additional Rs 11,215 crore.

Chief Minister Yediyurappa also pointed out that the lack of revenue in taxes from the Information Technology Services sector has also contributed to the fall in revenue. Yediyurappa said that the IT sector contributes to 25% of Karnataka State’s Gross State Domestic Product (GSDP) and since there is a tax exemption on the export of Information Technology Services, the state government has been ranked very low in the income distance parameter and there is drastic reduction in State’s share of revenue.

“The allocation recommendation of the 15th Finance Commission is limited to one year only and the complete report for the period 2021-22 to 2025-26 will be submitted in October 2020. Our Government will soon submit a revised memorandum to the 15th Finance Commission to set right the loss caused to the State with regard to allocation for the year 2020-21 and to give more allocation for the period from 2021-22 to 2025-26,” Yediyurappa added.

Earlier this week, the Centre reportedly released Rs 2,013 crore as first instalment of GST compensation for October-November to Karnataka. The second instalment of Rs 1,523 crore is also expected to be released shortly.