GST Mop-Up, Central Transfers To Add To Top States' Revenue, Says Crisil
Buoyant Goods and Services Tax collections and devolution from the Union government will drive a steady pace of 8-10% growth in revenue of India's top 18 states in fiscal 2025 to Rs 38 lakh crore, as per Crisil Ratings. Collections from GST and central transfers together comprise around 50% of aggregate state revenue.
While revenue from tax on liquor sales will remain stable, mid-single-digit growth in sales tax collections from petroleum products and grants recommended by the Fifteenth Finance Commission will be modest, Crisil said on Wednesday.
"The biggest impetus to revenue growth will continue to come from aggregate state GST collections that, after growing 18% on-year last fiscal, will climb up another 13-14% in the current fiscal," said Anuj Sethi, senior director at the ratings agency.
He attributed the reasons to the resilience of the Indian economy in the face of global turbulence, improving tax compliance, and the shift in economic activity from unorganised to the organised sectors, leading to greater formalisation of the economy.
Central tax devolutions is expected to grow 12-13% in financial year 2025. Grants from the Union government will grow by 4-5% year-on-year, in line with the Union budget outlay, including for centrally sponsored schemes and Finance Commission grants, which comprise grants towards post-devolution revenue deficit based on budget calculations and the commission's own stipulations.
Tax collection from liquor sales is expected to grow 5-7%, primarily due to rising consumption. A majority of the 18 states analysed, barring Karnataka and Kerala, have kept their liquor tax structure unchanged, the report said.
Higher fuel consumption driven by vehicular and industrial activity and a largely unchanged tax structure will gear a modest 3-4% revenue growth from sales tax on petroleum products. While consumption is expected to grow 5-6%, cuts in the prices of petrol and diesel undertaken this March will impact growth in sales tax collections by around 200 bps, the agency said.
The states analysed by Crisil Ratings include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa.
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