Introduction

The Goods and Services Tax (GST) in India, implemented on 1st July 2017, is one of the most significant indirect tax reforms since independence. The simplified tax system was expected to boost the revenues of both union and state governments on account of increased compliance. It subsumed several existing taxes levied by the union and state Governments. The states have surrendered more taxing powers than the union, thus raising concerns about the revenue autonomy of states. Sustaining the revenue stream which is subsumed into GST is essential for sustainable Public Finance Management (PFM) for states (Mukherjee, 2023). The GST (Compensation to States) Act was enacted to ease concerns about declining revenue in 2017. This act assured all states of an annual growth rate of 14% in their GST revenue compared to the base year of 2015-16, spanning five years from July 2017 to June 2022 (Gupta and Rajaraman, 2020). However, the compensation period ended on 30th June 2022. The hasty GST implementation process was yet to be fully stabilised by the time the COVID-19 pandemic hit the economy, significantly affecting the economy and tax revenues. Hence, some scholars have made a case for extending the compensation period (Rao, 2022).

Meanwhile, it has been one year since the compensation is over, and recent reports suggest that the monthly GST collection in India is touching a record high every month, crossing over Rs 1.5 lakh crores. The monthly GST revenue collection in the first quarter of FY 2023-24 is Rs 1.69 lakh crores. In this context, it is important to analyse the state-wise revenue performance of GST over the past six years and compare it with the pre-GST era.

Therefore, the main objective of this paper is to provide a comprehensive analysis of state-wise GST performance in India. We try to analyse the state-level performance of GST and the states' tax performance pre- and post-GST. We also try to analyse the intensity of how states were affected by the end of the GST compensation era.

The structure of the entire discussion is as follows. First, we shall look at the annual growth rates of tax revenue of the states and compare the growth rates of the pre-GST and post-GST eras to check whether there is any significant improvement/deterioration in the tax revenue growth rates after implementing GST. We shall also see whether the share of indirect tax revenue in Gross State Domestic Product (GSDP) has improved after implementing GST by analysing the tax-to-GDP ratio. In the next section, we shall figure out states' tax buoyancy before and after the implementation of GST to check whether it has improved after implementing GST and finally, we shall try to find how states have been affected by the end of GST compensation to the states.

Data and methodology

We take 16 major states in India for the analysis. Since the scope of our analysis starts from before 2014, the year in which Telangana was separated from Andhra Pradesh to become a separate state, we have combined the data of both those states into 'Andhra Pradesh'. The analysis period is from 2012-13 to 2022-23; i.e., 5 years pre-GST period and 5 years post-GST period. The year 2017-18 has not been considered, as this was the transition year. Further, since both the union and state governments settled transitional credits of pre-GST taxes with GST liability, GST collection is not likely to reflect actual GST potential in 2017-18 (Mukherjee, 2023). The pre-GST tax collection data for Gujrat and Haryana were unavailable in the GST portal. In this regard, we have used the same estimations from Mukherjee (2020).

States' revenue has been calculated as the sum of State Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST) settlement to the states. The GSDP and GST revenue data of the states were collected from the Ministry of Statistics and Programme Implementation (MoSPI) and the GST portal,[1] respectively.

The composition of GST revenue collection across states

The states' GST revenue includes two components. State Goods and Services Tax (SGST) and settlement of Integrated Goods and Services Tax (IGST) by the Centre. For any intra-state transactions, 50 percent of revenue is collected by the state (SGST) and the remaining by the union (Central Goods and Services Tax). In the case of interstate transactions, the entire GST will go to the IGST account and then will be apportioned equally among the Union and the destination state. This amount which will be apportioned to the states on account of interstate transactions is the IGST settlement.

A state with a high share of SGST implies that the state has more intrastate transactions. On the other hand, a state with more share of IGST settlement in its revenue will be a state whose revenue is dependent mainly on inter-state transactions. Since GST is a destination-based tax, it was anticipated that primarily consuming states would benefit compared to the producing states. Figure 1 illustrates the relative share of SGST and IGST in total revenue collection of the states over the years (Figure 1).

Figure 1: Components of States’ GST Revenue

Reference