Karnataka faces 10% tax collection shortfall in FY 2024-25, sets higher target for 2025-26

The Karnataka government recorded a nearly 10% shortfall in its tax collection target for the financial year 2024-25, collecting ₹1.72 lakh crore against the projected ₹1.9 lakh crore. Despite the shortfall, the government has now set an even more ambitious tax revenue goal of ₹2.1 lakh crore for 2025-26.

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The target for FY24-25 represented a 16% increase from the ₹1.6 lakh crore collected the previous year. However, sluggish consumption and ineffective enforcement were key factors that hindered revenue growth. Although there was a modest 3% increase in collections year-on-year, the rise was largely attributed to higher tax rates rather than increased economic activity.

The commercial taxes department, responsible for nearly 60% of total revenue, fell short of its revised ₹1 lakh crore target, collecting ₹1.02 lakh crore, primarily from GST and fuel taxes. The excise, transport, and stamps and registration departments also reported collections below revised estimates.

With global economic uncertainties easing, the state is banking on a rebound in consumption and improved tax compliance to meet its FY25-26 target. However, analysts caution that relying solely on rate hikes without stimulating demand may not yield sustainable results.