Will States Remain Net Gainers After GST Rate Changes?
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Synopsis
As concerns about revenue loss loom over the 56th GST Council meeting, new projections reveal states are set to benefit even with potential tax rate adjustments. This article explores the implications for states and consumers amidst ongoing discussions.
Key Takeaways
- States to receive at least Rs 10 lakh crore in SGST by FY26.
- 50% of GST collections are allocated to states.
- Historical data shows revenue growth after past rate changes.
- Rate rationalisation may lower prices on essential goods.
- Long-term gains expected despite short-term revenue dips.
New Delhi, Sep 3 (NationPress) During the 56th GST Council meeting, several states expressed worries about potential revenue losses. However, recent projections indicate that states will continue to be net beneficiaries under the existing GST structure, even with a possible adjustment in tax rates.
A report from SBI Research estimates that states are expected to garner at least Rs 10 lakh crore in State GST (SGST) collections for FY26, plus an extra Rs 4.1 lakh crore through tax devolution from the Central government.
This positive outlook is attributed to GST's unique revenue-sharing model, which allocates 50 percent of all GST collections directly to states, alongside 41 percent of the Centre’s share that is also distributed to them.
In essence, for every Rs 100 collected through GST, states end up receiving approximately Rs 70.5, ensuring a significant portion of the overall tax revenue.
Experts maintain that while there may be some immediate revenue declines due to these rate modifications, the long-term benefits — fueled by increased consumption and better compliance — will significantly surpass any temporary setbacks.
The discussion has intensified as eight opposition-led states — Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana, West Bengal, and Karnataka — have formally approached the Union government for compensation, expressing fears that rate rationalisation could diminish their revenue streams.
Nonetheless, historical patterns appear to support rationalisation. The SBI report references previous rate adjustments in 2018 and 2019, which initially caused a slight drop in collections but were followed by a steady revenue increase of 5–6 percent month-over-month.
Even if there is a temporary decline of about 3–4 percent in monthly GST collections (approximately Rs 5,000 crore), the report anticipates a quick recovery supported by rising consumption.
As the Council continues its discussions over the following two days, stakeholders and consumers are keenly awaiting announcements.
If the rate rationalisation is sanctioned, it could lower prices on essential goods and premium items, providing relief to households and stimulating consumption-driven growth.
Point of View
It is essential to recognize that while immediate concerns about revenue losses are valid, the long-term outlook remains optimistic. The GST framework is designed to benefit states, and historical data supports the notion that rationalisation can lead to sustained growth.
NationPress
03/09/2025
Frequently Asked Questions
How will GST rate changes affect state revenues?
While some states fear revenue losses, projections indicate they will remain net gainers due to the GST’s revenue-sharing model.
What is the projected GST collection for states?
States are projected to receive at least Rs 10 lakh crore in SGST collections in FY26, plus Rs 4.1 lakh crore from tax devolution.
What historical evidence supports GST rate rationalisation?
Past adjustments in 2018 and 2019 led to initial revenue dips but were followed by consistent growth of 5-6 percent month-on-month.
What could be the impact of rate rationalisation on consumers?
If approved, rate rationalisation could lower prices of essential and premium goods, benefiting consumers and boosting consumption.
What are the concerns raised by opposition-led states?
Eight opposition-ruled states have requested compensation, fearing revenue reductions due to potential rate changes.
