Step-motherly Treatment vs ‘Tukde Tukde’ Jibe: Who Said What as Centre, Karnataka Face Off Over Tax Devolution

Delhi’s Jantar Mantar is all set to play host to Karnataka Chief Minister Siddaramaiah, Deputy Chief Minister DK Shivakumar and several other Congress MLAs who will be staging a protest against the Union government’s tax devolution policies on Wednesday.

Both senior leaders reached Delhi late on Tuesday night for the protest that has been named ‘Chalo Delhi’ by Karnataka Congress.

Accusing the Centre of indulging in economic oppression of Karnataka, Siddaramaiah told reporters that the protest is non-partisan, framing it as a fight against injustice and discrimination in tax allocation.

The chief minister blamed the Union government for reduced share in the tax revenue pie, claiming that the move has resulted in a loss of over Rs 45,000 crore to the state in the last four years.

The chief minister also brought in the “north-south divide” debate to highlight how the Centre was being generous to the Northern states in the budget, while “injustice” was being done to Karnataka in “tax devolution”.

BREAKING DOWN DEVOLUTION

The Union government usually releases funds under tax devolution to states on the 10th of each month. In the past too, releases have been advanced to facilitate states in their fight against the coronavirus pandemic and also to help push capital spending.

Tax devolution is a major source of funds for states, used for spending on development, welfare and priority-sector projects and schemes. Currently, 41 per cent of taxes collected by the Centre is devolved in 14 instalments among states during a fiscal year.

The funds have been allocated to the states based on a predefined formula that takes into account various factors such as population, area, and fiscal capacity.

KARNATAKA’S OBJECTIONS

Pointing out that as per the 14th Finance Commission, Karnataka got a share of about 4.71 per cent of taxes, and 3.64 per cent of taxes as per the 15th Finance Commission, the chief minister said the move resulted in loss to the state to the tune of Rs 62,098 crore in taxes.

Further noting that the state government has submitted a memorandum to the Government of India regarding the severe drought situation in the state, Siddaramaiah said the crop loss is to the tune of Rs 35,000 crore, and Karnataka has requested the Centre to release Rs 17,901 crore from National Disaster Response Fund (NDRF), but has not received any relief so far.

“After we submitted the memorandum to the Government of India, the central team had come to Karnataka and visited the affected areas, and submitted a report to the Centre, but so far no meeting has been held by the Government of India to look into the report submitted by the central team. So far we have not received a single paisa from the Centre through NDRF,” he said.

Stating that the opposition BJP has been making false allegations against the Government of Karnataka alleging that it has not paid any relief towards crop compensation, Siddaramaiah said the state government has released Rs 2,000 as first installment to each of the affected farmers benefiting 34 lakh of them.

“About Rs 650 crore has been released for this. In addition to that, more than Rs 800 crore are with Deputy Commissioners of districts to take up relief works, and to provide drinking water, fodder, and other necessities,” he said. Alleging that despite the opposition BJP having 27 MPs (including one independent and one from JDS) on its side, “they have not opened their mouth” either in the Parliament or with the government, the Chief Minister said, adding, the ministers who are representing Karnataka in the NDA government have also not spoken to Prime Minister Narendra Modi and Home Minister Amit Shah about the state’s concerns.

CENTRE REBUTS

Government sources, however, said Congress knows it cannot implement its poll guarantees and is thus constantly seeking to divert attention by repeatedly raising bogus arguments and shifting blame.

“Chief Minister Siddaramaiah, who has presented 13 state budgets in the past, is well aware of how the public finances work. In July 2023, Deputy Chief Minister DK Shivakumar had said: “We have had to set aside Rs 40,000 crore this year (for the five guarantees). This year, we can’t provide development.” As recently as January 9 this year, the chief minister’s own economic advisor Basavaraj Rayareddi said: “The five guarantees have become a huge financial burden for our government because as much as Rs 58,000 crore has been earmarked for these”, the sources said.

Calling the Congress’ accusations “a glaring misdirection from their failure to provide for their commitments”, the sources said: “They promise grand schemes and guarantees, deliberately omitting the budgetary implications and then conveniently shift blame to the Centre when the reality of fiscal limits hits them.”

The government sources added that the Karnataka CM’s complaint about the state receiving less tax revenue than is actually collected “may stem from a misunderstanding of tax collection mechanisms or perhaps a strategic move to gain political leverage”. “By highlighting this issue, he is aiming to justify his inability to deliver on election promises, positioning it as a consequence of an unfair fiscal distribution rather than a failure of his administration,” they said.

“Siddaramaiah implies that he is getting far lesser amount of share than what is getting collected in Karnataka but he ignores that fact that places like Bengaluru in Karnataka have several companies with pan-India operations and concurrent tax payments. These companies make a profit because their services are sold across the country. This explains why the location of direct tax collection may not be a fair and equitable principle for the sharing of tax because although the money comes from everywhere across India, tax is paid in the state where the companies are registered.

“Applying similar logic we can say that a significant portion of Karnataka’s taxes are collected in Bengaluru. Thus, Siddaramaiah should scrutinise the funds Bengaluru receives versus the allocation to regions like ‘Kalyan Karnataka’ and Gulbarga. Has he ever addressed whether Bengaluru faces unfair treatment? This situation underscores the hypocrisy of the Karnataka CM who appears to be seizing opportunities rather than seeking equitable solutions for all.”

The sources said Siddaramaiah’s antics “could be viewed as promoting division, stirring separatist sentiments among the populace to distract from his shortcomings”. “This approach to politics is highly contentious and seems to resonate with strategies typically associated with Congress leaders, who are often accused of aligning with ‘Tukde Tukde’ gang. Such tactics not only undermine unity but also pose significant risks to social harmony,” they added.

On the issue of special grant, the sources said the 15th Finance Commission, in its Final Report for the period 2021-22 to 2025-26, did not recommend special grant to any state. “The recommendation that Siddaramaiah is talking about did not form part of Final 15th Finance Commission Report. So, the question of not accepting the recommendation does not arise,” they insisted.

They added that just not tax devolution, the Centre has gone beyond to provide additional financial assistance to Karnataka. Since FY 2020-21, Rs 6279.94 crore has been provided as 50-year interest-free loans to assist capital expenditure plans to Karnataka (as of February 5, 2024).

“During 2014-24 (till the latest release on January 10, 2024), Tax Devolution (Net Proceeds of Union Taxes and Duties) from Govt of India to Karnataka has been Rs 2,85,452 crore and increased by almost 250% or 3.5 times compared to 2004-14 (UPA Govt). It shows the commitment of the Government of India to strengthen Karnataka and help accelerate its capital and developmental expenditure,” they said.