States are poised to emerge as "net gainers" from the proposed Goods and Services Tax (GST) rate rationalization, with projected revenues exceeding ₹14.10 lakh crore in FY26, according to a State Bank of India (SBI) Research report released on Tuesday. Despite concerns from eight opposition-ruled states about potential revenue losses, the report, authored by a team led by Group Chief Economic Advisor Soumya Kanti Ghosh, asserts that the unique revenue-sharing structure ensures states will benefit significantly, even with a simplified tax regime.

The Centre has proposed transitioning from the current four-tier GST structure (5%, 12%, 18%, and 28%) to a streamlined two-tier system of 5% and 18%, with a new 40% rate for select luxury and demerit goods like tobacco. This overhaul, set to be discussed at the GST Council meeting on September 3 and 4, aims to simplify compliance, boost consumption, and enhance economic efficiency. However, opposition-led states have raised alarms, estimating an average revenue loss of ₹1.5-2 lakh crore, and are demanding compensation or revenue protection mechanisms.

SBI Research counters these concerns, highlighting that states receive approximately 70% of total GST collections due to the equal 50-50 split between the Centre and states, supplemented by a 41% devolution of the Centre’s share back to states. “Our projections for FY26 indicate that states are expected to receive at least ₹10 lakh crore in State GST (SGST) plus ₹4.1 lakh crore through devolution, making them net gainers,” the report states. It also notes that an effective GST rate reduction to 9.5%—down from 14.4% at GST’s inception in 2017 and 11.6% in September 2019—could generate an additional ₹52,000 crore in revenue (₹26,000 crore each for the Centre and states) due to a consumption boost.

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Historical data supports this optimism. Previous GST rate rationalizations in July 2018 and October 2019 showed a temporary 3-4% month-on-month revenue dip (roughly ₹5,000 crore, or ₹60,000 crore annualized), followed by robust recoveries with 5-6% monthly growth, adding nearly ₹1 trillion in revenues over time. “Rationalization is not just a short-term stimulus but a structural measure that simplifies the tax system, reduces compliance burdens, and widens the tax base,” the report emphasizes, projecting long-term revenue buoyancy.

The proposed reforms align with Prime Minister Narendra Modi’s vision, announced on August 15, 2025, for a “next-generation” GST framework to be implemented by Diwali. By streamlining slabs and lowering rates on essentials like dairy, textiles, and footwear (from 12% to 5%) and high-value items like cement and appliances (from 28% to 18%), the reforms aim to spur consumption by ₹1.98 lakh crore, contributing 1.6% to GDP. As India anticipates these transformative changes, SBI Research underscores that states will not only weather the transition but thrive, reinforcing the GST’s role as a cornerstone of economic efficiency.

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