States to gain from GST rate rationalisation: Report

States are expected to emerge as “net gainers” from the proposed goods and services tax (GST) rate rationalisation, and their revenue is projected to exceed ₹14.10 lakh crore in this financial year, including devolution, according to an SBI Research report.

The report said that the GST rate rationalisation exercise may not necessarily mean revenue loss for states as it is evident from the past exercise, although there may be an immediate dip of 3-4% in revenue collection. The GST council will meet on Wednesday and Thursday in Delhi to discuss the GST reforms proposed by the Centre and approved in-principle by the group of ministers.

The major proposals include moving to a two-tier tax structure of 5% and 18%, with 40% rate for select products, phasing out the 12% slab. “Our projections for FY26 indicate that states remain net gainers even after post-GST rate rationalisation,” the reports said, adding that states may mop up ₹10 lakh crore in state GST and ₹4.1 lakh crore through devolution.
Last week, eight opposition-ruled states expressed concerns, estimating potential revenue loss of ₹1.5-2 lakh crore and demanding revenue protection mechanisms.

This was higher than the SBI’s earlier estimate in its August 19 report, which had pegged revenue loss at ₹85,000 crore per annum.

“Out of every ₹100 of GST collected, states ultimately accrue nearly ₹70.5 or approximately 70% of total GST revenues,” the report said.SBI Research emphasised that the benefits will go beyond revenue generation as these structural measures will simplify the tax system, reduce compliance burden and widen the tax base, leading to long-term revenue buoyancy and greater economic efficiency.