Larger states to get more money thanks to buoyant tax mop-ups and Central transfers: Report

Last year, the growth rate was 7.5 percent, according to Crisil Ratings.
An illuminated Parliament at midinight launch of 'Goods and Services Tax GST ' in New Delhi. (File Photo | PTI)
An illuminated Parliament at midinight launch of 'Goods and Services Tax GST ' in New Delhi. (File Photo | PTI)

Buoyant tax collections, particularly from GST and Central transfers, are expected to help larger states increase their revenue by 8-10 percent this fiscal year, according to a report.

The report projects that the top 18 states, which account for over 90 percent of the gross state domestic product, will see revenue grow at a steady pace of 8-10 percent to Rs 38 trillion this fiscal year. Last year, the growth rate was 7.5 percent, according to Crisil Ratings.

Higher growth will be primarily supported by healthy GST collections and devolution from the Centre, which together comprise 50 percent of the aggregate state revenue.

Revenue from tax on liquor sales, which makes up 10 percent of total revenue, is expected to remain stable. Sales tax collection from petroleum products, accounting for 7-8 percent of revenue, and grants recommended by the 15th Finance Commission, making up 10-11 percent, are expected to see modest mid-single-digit growth, according to the report.

An illuminated Parliament at midinight launch of 'Goods and Services Tax GST ' in New Delhi. (File Photo | PTI)
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Anuj Sethi, a senior director with Crisil, stated that state GST collections will continue to drive revenue growth. After growing 18 percent year-on-year last fiscal year, state GST collections are likely to rise by 13-14 percent this fiscal year. This increase will be driven by the resilience of the overall economy, improving tax compliance, and the shift in economic activity from unorganised to organised sectors, leading to greater formalisation of the economy.

Central tax devolutions, expected to grow by 12-13 percent this fiscal year, will be the second key driver. Although the proportion of devolution is determined by the Finance Commission, the overall amount is linked to the gross tax collection by the Centre. This pool, which expanded by 19 percent last fiscal year, should continue to grow at a healthy pace this fiscal year, supported by rising income tax and GST collections.

Tax collections from liquor are expected to grow by 5-7 percent, mainly due to rising consumption. Except for Karnataka and Kerala, most of the 18 states have kept their liquor tax structure unchanged.

According to Aditya Jhaver, a director with Crisil, revenue from sales tax on petroleum products will grow by a modest 3-4 percent this fiscal year after remaining flat last fiscal year. While consumption is expected to grow by 5-6 percent, price cuts on petrol and diesel announced in March will impact sales tax collections by 2 percent.

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