GST: Tale Of Unequal Distribution To States

The states that contribute the most to Goods and Services Tax (GST) collections do not receive the highest share of GST revenue distribution. This disparity highlights a key issue in the allocation of funds, where economically prosperous states, generating higher tax revenues, may not see a proportionate return.

In any federal system, the distribution of revenue from taxes is a crucial aspect of ensuring economic balance and promoting equitable development across regions. However, in India, the states contributing the most to Goods and Services Tax (GST) collections often do not receive the highest share of the revenue distribution. This paradox stems from the design of the GST revenue-sharing model, which aims to ensure that the fiscal needs of all states, especially those with lower economic development, are met.

Data on the collection and distribution of GST showed that Maharashtra has been the leading state contributing nearly 35 to 45 per cent of the total collection every year. Other states like Gujarat, Karnataka, Tamil Nadu and Haryana have also seen an uptick in collection over the years.

In fiscal year 2024-25 (till January), Maharashtra contributed Rs 2,97,685 crore to total GST collection with Karnataka at second with Rs 1,31,949 crore. Gujarat was next with Rs 1,13,252 crore and Tamil Nadu was next at Rs 1,08,626 crore.

While prosperous states generate higher tax revenues due to their industrial activity, consumption levels, and larger population, the system of revenue distribution is structured to provide additional financial support to states with less developed infrastructure and lower tax generation capacity.

This has resulted in wealthier states receiving relatively lower funds, despite being the primary contributors to the national tax pool. Data also revealed that despite being the highest contributor to GST collections, Maharashtra did not receive an equivalent share of GST refunds from the central government. This discrepancy underscores a significant concern regarding the equitable distribution of GST revenues.

Source : https://www.outlookindia.com/amp/story/national/gst-tale-of-unequal-distribution-to-states