Economy
GST 2.0 Will Strengthen Revenue Collections, Keep States As Net Gainers: SBI Report
GST (Representative Image)
The State Bank of India’s (SBI) latest research note on GST 2.0 has projected that India’s upcoming Goods and Services Tax (GST) rate rationalisation will strengthen revenue collections while ensuring states remain net beneficiaries of the tax regime.
States Already Gained Beyond Assured Revenues
At the launch of GST in July 2017, states were guaranteed a 14 per cent annual increase in revenues for five years, with shortfalls covered through a compensation cess on luxury and sin goods.
SBI estimates show states received Rs 9.14 lakh crore in total compensation during this period, which was Rs 63,265 crore more than the projected assured amount.
Even during the COVID-19 crisis, when cess collections fell, the Centre borrowed and released Rs 2.69 lakh crore to bridge state revenue gaps, according to the report.
GST's Unique Revenue-Sharing Architecture
The report highlights GST’s federal framework, where revenues are equally shared between the Centre and states, with 41 per cent of the Centre’s share devolved back.
This ensures that nearly 70 per cent of every Rs 100 collected ultimately accrues to states, according to the report.
According to SBI, this design means states will not be fiscally disadvantaged, even with rationalised rates and the abolition of compensation cess.
FY26 Outlook: Strong Gains Ahead
SBI projects that in FY26, states will collectively receive Rs 10 lakh crore from SGST and Rs 4.1 lakh crore through devolution, making them net gainers despite rationalisation.
At a 9.5 per cent effective GST rate, rationalisation could add Rs 52,000 crore in revenues, split equally between the Centre and states.
States such as Uttar Pradesh (+Rs74,287 crore), Bihar (+Rs41,651 crore), and West Bengal (+Rs 31,154 crore) are among the largest projected gainers.
According to the SBI report, evidence from earlier GST rate cuts (2018, 2019) shows revenues dip briefly by 3–4 per cent month-on-month but recover with 5–6 per cent growth.
SBI notes these adjustments added nearly Rs 1 trillion in revenues over time.
"Rationalisation should be seen less as a short-lived stimulus to demand and more as a structural measure that simplifies the tax system, reduces compliance burdens, and enhances voluntary compliance, thereby widening the tax base," the report said.
It added that a streamlined GST framework will be "a step towards long-term revenue buoyancy and greater efficiency in the economy".
Next Steps and Reform Agenda
The report suggests that the Rs 50,000 crore surplus in the compensation fund (post repayment of COVID-era borrowings) could cushion states against any short-term revenue losses.
SBI also urges policymakers to:
Bring petroleum, electricity, and aviation turbine fuel under GST.
Simplify compliance through technology, pre-filled returns, and faster refunds.
Address the inverted duty structure that burdens businesses with unutilised input tax credit.
