Where States Stand on Revenue Collections, Before and After GST, Pg 19.

Key Highlights:

• The GST replaced various central and state indirect taxes since 2017, fundamentally altering fiscal federalism.
• October 2025 GST collections were ₹1.95 lakh crore, 4.6% higher than October 2024.
• State-wise data shows that several states collect less revenue under GST (as % of GSDP) than they did under pre-GST tax systems.
• Mizoram, Nagaland, Sikkim, Meghalaya, and Manipur saw declines in revenue-to-GSDP ratios post-GST.
• Punjab, J&K, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha also registered declines in revenue share vis-à-vis their pre-GST base.
• Industrial and service-heavy states such as Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana continue to contribute disproportionately to national GST revenue.

Detailed Insights:

• Revenue Changes Post-GST:
  • Before GST, states relied on VAT, entry tax, and other levies.
  • A recent PRS Legislative Research study shows aggregate revenue from subsumed taxes fell from ~6.5% of GDP (2015–16) to ~5.5% of GDP (2023–24).
  • This suggests GST revenues remain lower, on average, than the taxes they replaced.
• Compensation Issues:
  • States were assured 5 years of GST compensation (2017–2022), covering gaps in revenue growth.
  • The expiry of compensation has exposed states to fiscal stress, particularly consumption-poor states.
• Unequal Impact:
  • States with narrow tax bases, low industrialization, and weaker consumption (mainly in the Northeast and Hindi belt) have suffered the most.
  • Growth-oriented and diversified economies have adjusted better.
• Federal Finance Implications:
  • The 15th Finance Commission recommended a GST-to-GDP target ratio of 7% in the medium term; current levels remain below this.
  • Persistent revenue stress can weaken state spending on health, welfare, and capital infrastructure.

Scientific/Technical Concepts Involved:

• GSDP (Gross State Domestic Product): The total value of goods and services produced within a state.
• Subsumed Taxes: The multiple state and central indirect taxes merged into GST (e.g., VAT, entry tax, luxury tax).
• GST Compensation Mechanism: A temporary framework to ensure states’ revenue growth @ 14% annually for 5 years after GST rollout.