States projected to be net GST gainers by Rs 1.43 lakh crore in FY27: SBI report
New Delhi, July 24
An SBI Research report on Friday estimated that after accounting for GST collections together with states' share in basic excise duty, states are expected to be net gainers by approximately Rs 1.43 lakh crore in FY27 compared to FY26.
Going forward, the report expects a rebound in the GST collections and yearly growth in the range of 8-9 per cent and the moderation in collection is due to rate rationalisation, which is on expected lines.
Under the revised framework, with the compensation cess discontinued and additional excise duty (AED) introduced, states' combined share from GST and basic excise duty is projected to increase to nearly Rs 19.1 lakh crore in FY27 from Rs 17.7 lakh crore in FY26.
"There has been an increase in the overall share of the pie whose benefits will accrue to the states," said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
With the introduction of AED in BED in FY27, "we have created a hypothetical scenario in which by assuming 20 per cent growth over FY26 BED numbers, and assuming that this entire amount is AED, it is estimated at Rs 35,874 crore," Dr Ghosh added.
While, under the old arrangement in FY26, this AED would have been given as compensation cess, and hence states receive 100 per cent of it (Rs 35,874 crore).
However, in the new arrangement, states receive 41 per cent of AED which is Rs 14,708 crore. This leads to a hypothetical loss of Rs 21,000 crore in FY27. This amount is miniscule when divided among all 28 states, said the report.
Additionally, the impact of the revised tax structure from 28 per cent to 40 per cent on certain commodities such as pan and tobacco indicate that for an intra-state supply with a taxable value of Rs 100, states earlier received Rs 19.74 under the 28 per cent GST regime
Following the increase in GST on specified demerit goods from 28 per cent to 40 per cent, the states' share rises to Rs 28.20. Thus, the revised structure results in an additional Rs 8.46 accruing to states compared with Rs 3.54 for the Centre, clearly indicating that the benefits of higher taxation accrue to States as well.
"Another misnomer that needs to be corrected is that cess was never revenue of the Centre because its proceeds ultimately went to the States. That is not quite correct. The cess was levied by the Union Government and appeared as a Union tax receipt subsequently transferred to GST Compensation Fund in the Public Account of India, which finally went to states as grants," the report argued.
— IANS
Reader Comments
Finally some clarity on GST compensation. The Rs 21,000 crore 'hypothetical loss' is chicken feed when divided among 28 states. My concern is whether this revenue boost will lead to better infrastructure and public services in smaller states like ours. The devil is in the implementation.
Interesting point about the cess not being Centre's revenue. But tell that to consumers who are paying higher taxes on everything from pan masala to luxury goods. The common man is still bearing the burden. Rate rationalisation should have been done more thoughtfully to protect lower-income groups.
Rs 1.43 lakh crore gain sounds impressive but when you look at inflation and increasing expenditure needs of states, it's barely enough. States need more fiscal autonomy. The increased tax on demerit goods is a smart move - it discourages consumption while also boosting state revenues. Win-win.
As an expat living in India, I find the GST system quite complex. But this report shows India is moving in the right direction with revenue sharing. The 41% share for states from AED seems reasonable. Hope states use this to improve healthcare and education which are critical for growth.
The Rs 8.46 vs Rs 3.54 calculation for states vs Centre from higher taxation on demerit goods is revealing. States actually benefit more from taxing these items. But let's be real - how much of this additional revenue will actually reach the grassroots? Our bureaucracy has a way of eating up resources.
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