An SBI Research report predicts that states are likely to benefit by about Rs 1.43 lakh crore in the financial year 2027 compared to the previous year, considering GST collections and states’ share in basic excise duty. The report anticipates a recovery in GST collections with an annual growth rate of 8-9%, attributing the moderation in collection to rate rationalization as expected.
The revised framework, discontinuing compensation cess and introducing additional excise duty (AED), is projected to elevate states’ combined share from GST and basic excise duty to nearly Rs 19.1 lakh crore in FY27 from Rs 17.7 lakh crore in FY26. Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at the State Bank of India, noted an increase in the overall share benefiting the states.
With the introduction of AED in BED in FY27, a hypothetical scenario suggests an estimated AED amount of Rs 35,874 crore, assuming a 20% growth over FY26 BED numbers. Under the previous arrangement in FY26, this AED would have been provided as compensation cess, ensuring states received the full amount. However, in the new setup, states receive only 41% of AED, resulting in a hypothetical loss of Rs 21,000 crore in FY27, which is deemed minimal when distributed among all 28 states.
Moreover, the impact of the revised tax structure, increasing from 28% to 40% on certain commodities like pan and tobacco, indicates a rise in states’ share from Rs 19.74 to Rs 28.20 for an intra-state supply with a taxable value of Rs 100. This adjustment results in additional revenue of Rs 8.46 for states compared to Rs 3.54 for the Centre, highlighting the states’ increased benefits from higher taxation.
The report also clarifies a misconception regarding the cess, emphasizing that it was levied by the Union Government and not directly benefiting the Centre, as its proceeds were eventually transferred to the states. The cess appeared as a Union tax receipt before being allocated to the GST Compensation Fund in the Public Account of India, which then reached the states as grants.
