Implementing GST in India: Who gained and who lost?

The Goods and Services Tax (GST) in India, implemented on 1st July 2017, is one of the most significant indirect tax reforms since Independence. It subsumed several existing taxes levied by the central and state governments. The simplified tax system is expected to boost the revenues of both the union and state governments on account of increased compliance. The states have surrendered more taxing powers than the Centre, thus raising concerns about the revenue autonomy of states.  Sustaining the revenue stream, which is subsumed into GST, is essential for sustainable Public Finance Management (PFM) for states (Mukherjee, 2023). Hence, the GST (Compensation to States) Act was enacted to address concerns about declining revenue in 2017. Since the implementation of the GST reform, several concerns have been raised with respect to revenue neutrality, loss of states’ revenue and suffering of producing states as the GST is a destination-based tax. Since six years have passed and it has been more than a year since GST compensation ended, a comprehensive analysis of GST revenue performance at the state level assumes much importance. In this context, this study seeks to address three questions. One, how have states performed with respect to the GST growth performance after its implementation compared to the pre-GST period? Two, whether the GST reform enhanced the tax revenues of states in India? Three, whether GST affected producer states negatively while benefitting the consuming states? 
This study uses state-level GST data, which is derived by combining the revenue collection through SGST and IGST settlement from 2017-18 to 2022-23. Further, we use the GST revenue collected estimated through taxes subsumed under the GST period to GST from 2012-13.  Our analysis is restricted to eighteen general category states. We use the data on GSDP, per-capita GSDP and sectoral shares published by the MOSPI. The time period of our analysis is from 2012-13 to 2022-23. We analyse the GST revenue performance through three main indicators. One, GST as a percentage of GSDP; two, GST as a percentage of states’ own tax revenue; and three, the growth of GST revenues. We also analyse the intensity of the impact on states at the end of the GST compensation era. 
Our analysis throws light on the fact that, even though the states recorded higher tax revenues in absolute terms in the GST regime, it is dismaying to note that no states have improved their tax-to-GDP ratio during this period. Therefore, the increased growth rate in tax revenue could be attributed to other economic factors, especially the rebound of the economy after the downfall of the COVID-19 pandemic. Some states like Gujrat, which were lagging in the pre-GST regime, were able to emerge as the top performers in many aspects of the GST. Many states that have performed better in the pre-GST regime have also come down in the GST regime. This necessitates further improvement in the country's tax governance. Besides this, the majority of states’ tax buoyancy has decreased after implementing GST. Apart from all these, the actual GST collection by the states is far below the expected revenue. In tandem, these factors lead to increasing fiscal stress on the states on account of the implementation of GST in India.