CRISIL predicts GST, Tax on petroleum products and liquor are the top-three sources of revenue for the states
Top 18 Indian states in terms of gross domestic product are likely to record revenue growth of 8-10 per cent in the financial year 2025 as compared to last year's 7.5 per cent, according to a report by CRISIL ratings. The growth is likely to come due to increase in states revenue backed by central tax devolution and healthy GST collections.
GST and tax on petroleum products and liquor are the top three sources of revenue for the state governments. Income of the government from GST is likely to grow by 13-14 per cent while liquor tax revenue is projected to grow by 5-7 per cent. Revenue from petroleum tax is expected to grow by 3-4 per cent. Except for Karnataka and Kerala, 16 states have made any changes to liquor tax structure.
Notably, revenue from these top 18 states accounts for over 90 per cent of India's gross domestic product.
“The biggest impetus to revenue growth will continue to come from aggregate state GST collections that, after growing ~18% on-year last fiscal, will climb up another 13-14% in the current fiscal. This will be driven by the resilience of the Indian economy to global turbulence, improving tax compliance, and the shift in economic activity from unorganised to the organised sectors, leading to greater formalisation of the economy," said Anuj Sethi, Senior Director, CRISIL Ratings.
The projected growth will vary based on the volatility in the global economy and its impact on Indian economy, the markets analytics firm said in its report. Moreover, central tax devolution is expected grow by 12-13 per cent. The firm suggested in its report that state should keep their eyes on their own revenue and improving tax collection efficiencies.
“Revenue from sales tax on petroleum products will grow a modest 3-4% on-year this fiscal after a flattish last fiscal. This will stem from higher fuel consumption driven by vehicular and industrial activity, even as the tax structure remains largely unchanged. While consumption is expected to grow ~5-6 per cent, cuts in the prices of petrol and diesel undertaken this March will impact growth in sales tax collections by ~200 bps" said Aditya Jhaver, Director, CRISIL Ratings
The 18 states include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa.