Will States Continue to Gain Rs 10 Lakh Crore in SGST?
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Synopsis
Discover how states are set to benefit from GST collections despite proposed rate changes. An SBI Research report reveals expected revenue figures that highlight a positive outlook for states, with significant amounts anticipated through SGST and devolution. Dive into the details of this financial landscape and what it means for the future.
Key Takeaways
- States expected to gain Rs 10 lakh crore in SGST.
- Total expected devolution of Rs 4.1 lakh crore.
- GST revenue-sharing ensures states receive nearly 70% of collections.
- Rate rationalisation may boost revenue rather than hinder it.
- States protected through a compensation cess on luxury goods.
New Delhi, Sep 2 (NationPress) States are projected to continue as net beneficiaries from GST revenue in FY26, even with the anticipated rate adjustments. According to an SBI Research report released on Tuesday, they are expected to receive a minimum of Rs 10 lakh crore in SGST along with Rs 4.1 lakh crore via devolution.
This outcome is attributed to the distinctive revenue-sharing framework of the tax. Primarily, GST revenues are divided equally between the Centre and States, allowing each to retain 50 percent of the total collections. Furthermore, under the tax devolution mechanism, 41 percent of the Centre's share is returned to the States.
The report highlights, “This means that for every Rs 100 collected in GST, States eventually retain nearly Rs 70.5, which is around 70 percent of the overall GST revenue.”
Gains are expected to persist even without considering the additional consumption boost resulting from rate rationalisation, which at an effective GST rate of 9.5 percent, could lead to a revenue increase of Rs 52,000 crore—with Rs 26,000 crore allocated to both the Centre and the States.
As per the findings, historical data from previous GST rate adjustments in July 2018 and October 2019 indicates that rate rationalisation does not inherently detract from revenue collections.
“In fact, evidence suggests a temporary adjustment phase followed by more robust inflows. Although an immediate rate cut may result in a short-term revenue dip of about 3–4 percent month-on-month (approximately Rs 5,000 crore, or an annualised Rs 60,000 crore), revenues generally recover with consistent growth of 5–6 percent monthly,” the report elaborated.
Upon the GST's introduction, States were guaranteed a 14 percent annual revenue increase over five years from July 1, 2017, to June 30, 2022. Additionally, it was assured that any revenue shortfall would be compensated through a cess on luxury goods and sin products such as liquor, cigarettes, and automobiles.
As per the GST Council's decision, States received a total compensation of Rs 9.14 lakh crore aimed at safeguarding their tax revenues during the entire five-year transition period.
This amount exceeded the projected Rs 63,265 crore (on an aggregate basis) that States were expected to gain from the guaranteed 14 percent revenue increase, as highlighted in the report.
Point of View
It is clear that the GST revenue framework ensures that states continue to benefit significantly despite potential rate adjustments. This reflects a commitment to fiscal stability and growth, aligning with the nation's broader economic goals.
NationPress
02/09/2025
Frequently Asked Questions
What is the projected SGST revenue for states?
States are expected to receive at least Rs 10 lakh crore in SGST.
How does the revenue-sharing mechanism work?
GST is equally shared between the Centre and States, with each receiving 50% of the collections.
What is the impact of rate rationalisation on revenue?
Historically, rate rationalisation does not weaken revenue collections; it often leads to stronger inflows after an adjustment period.
What compensation have states received post-GST implementation?
States have been compensated a total of Rs 9.14 lakh crore to protect their tax revenues during the transition period.
What was guaranteed to states at the GST's launch?
States were assured a 14% increase in annual revenue for five years and compensation for any shortfalls.
