States to get Rs 14.1 lakh cr despite GST rate rationalisation: SBI report
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New Delhi: States are expected to remain net beneficiaries of GST collections in fiscal year 2026 even under the proposed rate rationalisation, according to a report by SBI Research. The report estimates that states will receive at least Rs 10 lakh crore in State GST (SGST) along with Rs 4.1 lakh crore through tax devolution.
The report attributes this to the unique revenue-sharing structure of GST. Collections are split equally between the Centre and the states, with each receiving 50 per cent. In addition, 41 per cent of the Centre’s share is devolved back to the states. As a result, states effectively receive nearly Rs 70.5 from every Rs 100 of GST collected, representing approximately 70 per cent of total GST revenues.
These gains persist even without factoring in the additional consumption boost expected from the rate rationalisation. At an effective GST rate of 9.5 per cent, the rationalisation is projected to yield an additional Rs 52,000 crore, with Rs 26,000 crore accruing to the Centre and an equal amount to the states.
Evidence from earlier GST rate adjustments, such as those in July 2018 and October 2019, indicates that rationalisation does not necessarily reduce revenue collections. The report notes that while an immediate reduction in rates can trigger a temporary 3-4% month-on-month dip, approximately Rs 5,000 crore or an annualised Rs 60,000 crore revenues typically recover with sustained growth of 5-6% per month.
When the GST regime was launched, states were assured a 14% increase in annual revenue for five years during the transition period from July 1, 2017, to June 30, 2022. Any shortfall was to be compensated through a cess on luxury goods and sin products, including liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal.
As per GST Council decisions, states received a total compensation of Rs 9.14 lakh crore over the transition period, which exceeded the projected amount based on the assured 14% growth by nearly Rs 63,265 crore at an aggregate level.
With IANS inputs
