Revenue of states from taxes subsumed under GST declined for most: PRS report

New Delhi: The aggregate revenue for states from taxes subsumed under GST has declined for most states, even as some North-Eastern states have seen an improvement in their subsumed tax-to-GSDP ratios as compared to the pre-GST regime, a report has said.

According to a report by PRS Legislative Research, since its introduction, aggregate revenue for states from subsumed taxes has declined from 6.5 per cent of GDP in 2015-16 (in the pre-GST regime), to 5.5 per cent of GDP in 2023-24.

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The Goods and Services Tax (GST), implemented in 2017 as a tax reform, subsumed a range of taxes and levies at the central and state level, including VAT, Central Sales Tax, Excise Duty, and Entry Tax.

The report said the average SGST as a percentage of GDP over the seven years of GST (2.6 per cent) has been below the average subsumed taxes in the four full years before GST.

States were guaranteed a 14 percent annual growth in SGST revenue during the first five years, and states that fell short of this growth were compensated through revenue from GST compensation cess until June 2022, the report said.

In the four years before 2015-16, states got an average of 2.8 percent of GDP from taxes that were later subsumed under GST.

The revenue dropped to 2.7 per cent in the first full year of GST, and further to 2.3 per cent in the COVID-19 year of 2020-21, before climbing back to 2.8 per cent in 2024-25.

The report also said there is a significant variation across states, and some North-Eastern states like Meghalaya, Manipur, Mizoram, Nagaland, and Sikkim have seen an improvement in their subsumed tax to GSDP ratios, as compared to the pre-GST regime.

The 15th Finance Commission had observed that this performance improvement may be due to the destination-based principle of taxation under the GST regime.

In comparison, other states such as Punjab, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha have a relatively larger drop in their revenue from the subsumed taxes as a percentage of GSDP, it added.

The report also said the recent decision of the GST Council of rationalisation of GST rates into two standard slabs of 5 per cent and 18 per cent, along with a special de-merit rate of 40 per cent for select goods, could impact SGST revenue adversely.

In 2025-26, 44 per cent of the own tax revenue of states came from State Goods and Services Tax, while 20 percent came from Sales Tax, 14 percent from State Excise, and around 12 percent came from Stamp duty and registration fees.

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