Karnataka misses tax collection target by nearly 10% despite rate hikes

BENGALURU: The Karnataka govt recorded a nearly 10% shortfall in tax collection for 2024-25, with experts attributing the gap to sluggish consumption and poor enforcement, reports BV Shivashankar.


CM Siddaramaiah had set an ambitious target of Rs 1.9 lakh crore in state tax collections, a 16% increase from the Rs 1.6 lakh crore collected in the previous financial year. By March 31, the govt managed to collect only Rs 1.7 lakh crore. Undeterred by the shortfall, the CM has now raised the bar higher, setting a target of Rs 2.1 lakh crore for 2025-26.

During the past year, the govt had increased tax rates across various sectors, including sales tax on petrol and diesel, additional excise duty on liquor, guidance value of properties, and vehicle registration fees.

Expert says govt fell short of target despite revenue being 3% higher than last year
Experts noted that while these hikes helped offset some revenue losses, the overall tax collection would have been lower without them. With steeper target for 2025-26, experts suggest that the govt must focus on boosting consumption to ensure sustainable growth.

"The achievement of tax collection is remarkable considering the global situation that impacted growth across sectors. We've ensured a nominal 3% growth amid tough challenges, and the outlook for the current fiscal is strong as the chief minister has projected tax revenue at Rs 2,08,100 crore," said Basavaraj Rayareddi, economic adviser to Siddaramaiah.

"The govt has fallen short of the target despite revenue collection being 3% higher than the previous year. This means the revenue growth is due to a hike in rates rather than a rise in consumption. The govt should factor this in while formulating revenue policies for the current year," said D Rajashekhar, director of Institute for Social and Economic Change.

Recognising the consumption slowdown, the CM had revised revenue targets downward for various revenue-earning departments in the last quarter of 2024-25. However, none of the departments met even the revised targets.

For commercial taxes, which contribute about 60% of total revenue, the initial target of Rs 1.1 lakh crore was revised to Rs 1 lakh crore, but collections were underwhelming. Of this, Rs 23,904 crore came from sales tax on petrol and diesel, Rs 77,330 crore from GST, and Rs 1,352 crore from professional tax on salaried employees.

The excise department, with a revised target of Rs 36,500 crore, collected Rs 35,530 crore. The transport department, expected to generate Rs 13,000 crore before being revised to Rs 12,500 crore, collected Rs 11,744.7 crore.

"Going by the experience of 2024-25, there is scope for pushing up consumption in the current fiscal year. Hopes are that global headwinds recede and consumption will return to a growth trajectory," said BT Manohar, member of the Karnataka State GST Advisory Committee.

With the govt banking on economic recovery and improved compliance, achieving the ambitious Rs 2.1 lakh crore target for 2025-26 will be a significant challenge.