It is always a conundrum of a half-filled glass, or half-empty one when it comes to policy and tax implications. There are ways to praise the decisions, and there are ways to undermine the actions. It depends on the outlook and mindset of the critic, chosen period, and desired conclusions through unique calculations. Hence, it is not surprising that a recent report states that GST collections may exceed the Union Budget’s expectations in this fiscal year. Another one looks at GST collections through another prism, and finds that states are the losers in the GST regime, and will remain so.
Obviously, the spate of reports emanates from the rationalisation via lower rates, and less slabs. Lower rates can result in lower numbers if volumes do not take off. In such a scenario, the states’ share can slump. The reports gained confidence, in varying ways, from the October 2025 GST collections, which went up by under five per cent. According to a report by SBI Research, GST revenue will be higher than the budgeted projections, and in line with growth assumptions made by the GST Council. Thus, higher volumes will trump lower rates, which is reflected in the October numbers.
The October collections were for sales in September, when due to expectations of lower GST rates, there was minimal buying in the first three weeks, and most of the sales, especially of big-ticket purchases, took place during the Navratri period, which began on September 22. Despite this slag, and lack of buying desires, especially after Prime Minister Narendra Modi’s announcement of the forthcoming changes on August 15, revenues were up. Once the November numbers for the sales in October (Dussehra and Diwali included) come in, one will know the actual implications.
Most states, states the SBI report, will benefit, which will lead to higher revenues in 2025-26. It estimates that the progressive and industrial states of Maharashtra will gain by six per cent, and Karnataka by almost 11 per cent. Other beneficiaries will include Tamil Nadu, Gujarat, and Haryana, with an outlier like Telangana (8.6 per cent rise). Even the so-called weaker states will benefit: Bihar (9.3 per cent), and Punjab (6.7 per cent). Some states will be large losers: Himachal Pradesh (minus 6.3 per cent), Jharkhand (minus 5.2 per cent), and Uttarakhand (minus 4.6 per cent).
Comparing state-wise October 2025 figures with October 2024 ones, of the 28 states, 16 clocked negative figures, with the main losers being Jharkhand (minus 15 per cent), Uttarakhand (minus 13 per cent), and Andhra Pradesh (minus nine per cent). The biggest gainers were the puny states like Nagaland (46 per cent), and Arunachal Pradesh (44 per cent). Some of the largest states were in the black, and included Karnataka (10 per cent), and Gujarat (six per cent). Maharashtra (three per cent), and Tamil Nadu (four per cent) were in the positive. The outlier: Telangana (10 per cent).
What is remarkable is that the predicted state-wise losses did not materialise. Reports indicated that Karnataka’s monthly loss would be more than Rs 7,000 crore; gain in October 2025 over September 2025 was Rs 900 crore. In the case of Telangana, the loss was estimated at nearly Rs 600 crore a month; the figures showed an increase of over Rs 700 crore. At the national level, the predicted annual loss in revenue ranged from less than Rs 50,000 crore to a mind-boggling Rs 10,00,000 crore. The SBI report stated that the “strong momentum (in October 2025) … belies not only the near-absurd fear of large falls… it refutes the apprehension expressed by the states.”
In a contradictory report, PRS legislative Research found that the states’ GST revenues, when compared to the pre-GST collections from sources that were subsumed under GST, like value-added tax, sales tax, excise duty, etc., have suffered. They declined from 6.5 per cent of the GDP in 2015-16 to 5.5 per cent in 2023-24. In the four years before 2015-16, the states received an average 2.8 per cent of GDP from the central pool. This dropped to 2.7 per cent in the first year of GST, 2.3 per cent (Covid year), and bounced back to 2.8 per cent in 2024-25. PRS expects an adverse impact now.
There are extreme differences between the states. Some of the larger states such as Karnataka, Madhya Pradesh, and Punjab witnessed “relatively large drops” in revenues from subsumed taxes. Smaller states, especially the North-East ones such as Meghalaya, Manipur, Mizoram, Nagaland, and Sikkim, gained. According to the Fifteenth Finance Commission, the improvement was due to the “destination-based principle of taxation under the GST regime.” This is pertinent because 44 per cent of the states’ annual own-tax revenues came from the State GST, 20 per cent from sales tax, 14 per cent from state excise, and 12 per cent from stamp duty and registration.
SBI Research’s historical evidence proves the opposite. Its report states that when GST was rationalised earlier in 2018 and 2019, there was no weakening in collections. “Instead, the evidence points to a temporary adjustment phase followed by stronger inflows. While an immediate reduction in rates can cause a short-term dip of 3-4 per cent month-on-month, revenues typically rebound with a sustained growth of 5-6 per cent per month,” explains the report. In the past, such trends resulted in additional revenues of Rs 1 trillion. Rationalisation is not just a “short-lived stimulus” but a “structural measure,” which tends to widen the tax base.
For example, in 2018, the two subsequent months after the rate cut witnessed a decline of three per cent each, before monthly revenues picked up by more than eight per cent, and nearly 10 per cent. Similarly, in 2019, the slumps were higher, up to 6.5 per cent per month. The uptick was lower, nearly four per cent in the third month after the rate cut, and 8.5 per cent in the fourth month. The fact remains that rate cuts come with simplification, which “reduces compliance burdens, and enhances voluntary compliance.” They are steps towards “long-term revenue buoyancy, and greater efficiency.”
Hence, one needs to wait for the January 2026 collection figures, which will pertain to the sales in December 2025, to be sure of the impact of the double-Diwali bonanza this time. It is too early to reach conclusions, and this is applicable even to the sectors. There is much enthusiasm about the higher sales of cars, two-wheelers, and appliances, which was partially triggered by the pent-up pre-festive season demand. Only, when things settle down, and stabilise, and life returns to normal after the New Year’s can we gauge the trends.
