Despite impressive headline numbers, India's Goods and Services Tax (GST) collections may be presenting a misleading picture of underlying revenue growth, according to a new analysis by prominent economists. Changes in how certain taxes are classified, referred to as "re-labelling," are obscuring a weaker revenue trend and impacting the share of revenue accruing to states.
The 'Re-labelling' Controversy
Former Chief Economic Adviser to the Government of India, Arvind Subramanian, alongside Josh Felman and Abhishek Anand, highlighted in their analysis that while GST rate changes since September 2025 have aimed to simplify the tax structure, they have inadvertently complicated the assessment of the tax system's true revenue performance. The core issue lies in how different tax components are now grouped and reported.
For instance, the compensation cess on tobacco and pan masala was abolished and these products were moved into a revised GST structure, alongside additional excise duty. Experts caution that simply aggregating these re-classified components and labelling them as GST can lead to misleading comparisons with previous years.
Discrepancy in Revenue Growth
The distinction between headline and actual revenue growth is significant. For the first half of fiscal year 2027 (FY27), gross GST collections rose 11.6% year-on-year to over ₹12.46 lakh crore, with net collections increasing 10.4% to ₹10.66 lakh crore. September 2026 alone saw gross collections climb 14.7% to over ₹2.03 lakh crore, supported by domestic consumption and a 26% rise from imports.
However, the economists' analysis reveals a different story when accounting for the re-labelling:
- FY26: Headline GST growth was 7.5%, but actual gross GST growth stood at 5.8%, and actual net GST revenue growth was only 4.0%.
- Q1 FY27: Headline growth reached 10.5%, while actual gross GST growth was a mere 1.5%.
- Q2 FY27: Headline growth was 15.0%, but actual gross GST growth was 9.5%, and actual net GST growth was 8.2%.
These disparities are crucial because headline GST figures do not accurately represent the revenue available to the government after various tax adjustments.
Impact on States' Share
Beyond the central government's overall revenue, the analysis also points to a hidden decline in the states' share of revenue due to GST re-labelling. Net GST revenues, as a percentage of GDP, have shown a downward trend:
- Pre-GST Average: Approximately 6.2%
- FY24: 6.0%
- FY25: 5.9%
- FY26: 5.7%
This decline suggests that states are receiving a smaller portion of the overall revenue pool compared to the pre-GST era, an impact obscured by the new classification methods. The experts emphasize that a true assessment of GST performance requires a deeper look beyond headline collection numbers, scrutinizing how revenue is classified, retained after adjustments, and ultimately distributed to states.