BENGALURU: The recent GST rate cuts have caused a sharp drop in tax revenue for states, and the Centre should compensate states for losses and share the new pan masala cess equally, Chief Siddaramaiah wrote to Prime Minister Narendra Modi.
Siddaramaiah said the GST rate changes approved in the 56th GST Council meeting have slowed down collections across the country. Citing an example, he said the gross GST collections in November 2025 fell by 2%, while they had grown by 9.3% in November last year. Between September and November 2025, GST grew only 3.3%, compared to 9% in the same period last year. Net domestic GST rose just 1.7%, much lower than last year’s 8.9%, the CM wrote.
He added even the festival month of October did not improve revenues. If this trend continues, national GST collections could fall short by Rs 1.2 lakh crore this financial year.
The CM said Karnataka is also facing a serious revenue hit. Net GST growth from September to November was only 3.1%. The state expects a Rs 5,000 crore shortfall in the remaining months and a total loss of Rs 9,000 crore for the entire year due to the rate cuts.
Another Rs 9,500 crore loss is expected because the GST compensation cess has not been merged into the GST system. In total, Karnataka could lose up to Rs 18,500 crore this year. Siddaramaiah said the Centre, however, will remain revenue-positive because it still collects central excise duty on tobacco and has added a new cess on pan masala.
He opposed the idea of giving states a share of the pan masala cess through a health scheme, saying this limits state freedom. Instead, he demanded that the cess be shared equally between the Centre and states. The CM urged the Union government to fully compensate states for losses caused by the rate cuts, using 2024-25 as the base year and including cess collections. He said states had supported the rate cuts in the public interest and hoped the Centre would now protect state finances in the spirit of cooperative federalism.