“…the growth in overall government collection of GST will increase from 20% in the previous fiscal year to 12-14% in this fiscal year,” he added.
Factors such as resilience of Indian economy amid global turmoil, moderating inflationary environment and increasing tax compliance will help GST collections, Sethi said.
The rating agency said 18 states which account for 90% of the state’s overall gross domestic product could see steady income growth of 6-8% for a cumulative total of Rs 34 lakh crore this financial year against growth of 7.3% in FY23.
With the removal of GST offset support and muted sales tax collections and subsidies, growth this year will be primarily supported by Goods and Services Tax (GST) collections, transfers from the Center and taxes and duties on alcohol sales, together accounting for 55 to 60 percent. cent of total state revenue, he noted.
Growth in the central fiscal decentralization pool will moderate to 10% from 13% last fiscal year, the agency said, adding that it will be one of the main revenue drivers for states. “While the proportion (of central fiscal decentralization) is determined by the Finance Committee, the overall kitty is tied to gross tax collections by the Centre,” he said. Excise duties and sales tax on alcohol sales will also increase by 10-12%, thanks to increased consumption, with most states keeping their tax structure unchanged, he said. .
State revenue from auto fuel sales tax may rise only a modest 6-8%, mostly due to steady demand for petroleum products, with only a few states announcing revisions to their structures car fuel taxes in their fiscal year 24 budgets, it said.
“Among the other main reasons for the modest revenue growth overall would be the marginal growth in Center grants. This includes grants to Center-sponsored schemes and Finance Committee grants, including those intended for post-devolution revenue shortfalls, based on budget calculations and stipulations of the Finance Committee,” said its director Aditya Jhaver.
Jhaver recalled that the central government GST offset grants at Rs 90,000 crore in the last financial year are no longer available this financial year as the scheme ended on June 30, 2022.
The agency also said a volatile global economic outlook and its impact on export-related sectors could negatively impact revenue projections, while better-than-expected fiscal momentum, any extension of the period GST offsets or Center support in the form of higher grants could increase states’ collections.