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State Bank of India has assured all the states before the GST Council meeting that they will benefit from GST rationalization. SBI said that the rate cut will increase GST collection. Also, the states that will suffer losses due to this will be given money from the compensation fund.

The government bank said that this will happen due to the way GST revenue is shared. The bank said that first of all, GST is divided equally between the Center and the states, in which each gets 50% of the collection. Second, under tax transfer, 41% of the Center's share is returned to the states. This simply means that if Rs 100 tax is being collected by the central government, then about Rs 70.5 of it is given to the states.

States will get huge benefits
SBI said that we estimate that the states will get Rs 10 lakh crore from State GST and about Rs 4.1 lakh crore of the money given to the states by the Center. SBI said that in India, simplifying and rationalizing GST rates does not reduce tax collection. There may be a slight reduction in revenue initially, but later it sees a significant increase. For example, the changes in July 2018 and October 2019 show that reducing tax rates may initially reduce revenue by 3-4%, about Rs 5,000 crore per month or Rs 60,000 crore annually. But after this, there is a sharp increase in revenue, usually by 5-6% every month.

Short-term and long-term effects

Short-term effects - There is a slight decline in revenue in the initial months after a reduction in GST rates. For example, a reduction in tax collection of -3.05% was recorded in November 2018, -2.98% in December 2018, -3.80% in July 2019, and 6.40% in September 2019.

Long-term effect- At the same time, revenue improves and increases over time. For example, there was a spectacular increase of 8.21% in January 2019, 9.59% in March 2019, 6.84% in April 2019, and 8.50% in November 2019. Overall, this provides additional revenue of about ₹ 1 trillion annually.

Structural Significance- Rationalizing GST rates is not just a way to give a short-term economic boost. Its real benefit lies in simplifying the tax system, reducing the compliance burden and encouraging people to pay taxes voluntarily. This increases the tax base. Streamlining GST is part of the government's long-term strategies, which emphasize on increasing revenue and improving economic efficiency.

SBI said that changing GST rates is not a temporary measure, but a major structural reform. It proves beneficial for the government's revenue and overall economic health in the long run.

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