GST implementation strengthens state governments' tax revenues, improves tax buoyancy: India-Ratings and Research
India Ratings and Research (Ind-Ra) has said that the implementation of the Goods and Services Tax (GST) has significantly strengthened state governments’ tax revenues and improved tax buoyancy, with Maharashtra accounting for the highest share of state taxes post-GST, supported by strong domestic consumption and a presence of large services sectors. Introduced on July 1, 2017, GST subsumed 17 taxes and 13 cesses, simplifying the country’s indirect tax structure by replacing multiple central and state levies with a unified system.
According to Ind-Ra, the tax buoyancy of 26 states studied rose to 2.9 during FY18-FY26, i.e., post GST implementation, compared to 0.6 during FY14-FY17. The overall composition of tax revenue changed from prior to post GST implementation, except for Maharashtra and Karnataka that consistently accounted for the first and the second highest share. Maharashtra though always remained the frontrunner, its share in states tax revenue increased to 20.4% during FY18-FY26 from 17.6% during FY13-FY17, given the high domestic consumption and presence of large services sector. The top five states in terms of tax buoyancy after GST implementation were Manipur, Nagaland, Goa, Maharashtra and Sikkim, while Meghalaya, Bihar, Nagaland, Chhattisgarh and Manipur led prior to GST implementation. One of the key reasons for this is the structural change in indirect taxation to a destination-based consumption tax from origin-based production tax, inclusion of services post GST, and plugging tax leakages.
The report further said the state governments' tax revenue collection had grown 6.8 per cent to RS 3.7 lakh crore during FY13-FY17, while Gross State Domestic Product (GSDP) expanded 11.6%. The said data is for 26 states/UTs, for which comparative data was available from FY13-FY17. These states account for nearly 80 per cent of State Goods and Services Tax (SGST) collections excluding Integrated Goods and Services Tax (IGST). Post GST, the state governments' tax revenue increased 9 per cent to Rs 12.9 lakh crore during FY18-FY26, even as GSDP growth moderated to 10.4 per cent and reached Rs 315.2 lakh crore. This higher SGST growth has been due to the simplification of taxation system, incorporation of technology and analytics to ensure tax compliance, and expansion in taxpayers' base that increased to 1.65 crore in May 2026 from 67 lakh in 2017, underlining formalisation of the Indian economy. It noted that higher tax revenue indicates increased consumption, and improved monitoring and compliance.
