Impact of GST on State Revenues: Gains and Losses Explored

The introduction of GST in 2017 led to declines in state tax revenues from the subsumed taxes, decreasing from 6.5% of GDP in 2015-16 to 5.5% in 2023-24. Despite this, some North-Eastern states improved tax-to-GSDP ratios. Recent GST rate changes may further affect state GST revenues.

The implementation of the Goods and Services Tax (GST) in 2017 has largely led to declining state revenues from taxes that were merged under the new system. A report by PRS Legislative Research reveals a dip in aggregate revenue from 6.5% of GDP in 2015-16 to 5.5% in 2023-24.

Although some North-Eastern states like Meghalaya and Mizoram saw improvements in their tax-to-GSDP ratios, larger states such as Punjab and Karnataka experienced more significant revenue drops. The report notes variations across states, attributing improvement to the destination-based tax principle of the GST regime.

Further changes to GST rates, proposed by the GST Council in the form of two standard slabs and a separate de-merit rate, could impact State Goods and Services Tax (SGST) revenues adversely, influencing overall state finances.

(With inputs from agencies.)