GST collections may look stronger than they are: What rate re-labelling is hiding
GST rate changes since September 2025 have simplified the tax structure, but changes in revenue classification may be masking a weaker underlying revenue trend, top economists said. The analysis suggested that headline GST collections do not fully capture the decline in net revenues or the changing share of revenue accruing to states.
- Oct 2, 2026,
- Updated Oct 2, 2026 6:21 PM IST
GST revenue performance may appear stronger on the surface than the underlying numbers suggest, as changes in tax classification have complicated comparisons across years. Arvind Subramanian, senior fellow at the Peterson Institute for International Economics and former Chief Economic Adviser to the Government of India, along with Josh Felman and Abhishek Anand, argued that GST “re-labelling” has obscured both the decline in revenue growth and the share accruing to states.
In their analysis, the authors noted that GST changes since September 2025 have simplified the rate structure and reduced rates. However, they argue that the accompanying changes in how certain taxes are classified make it difficult to assess the tax system’s underlying revenue performance.
The latest monthly data shows that gross GST collections rose 14.7% year-on-year to over ₹2.03 lakh crore in September, supported by domestic consumption and a 26% rise in revenue from imports. After refunds, net GST collections increased 18.1% to over ₹1.76 lakh crore. In the first half of FY27, gross collections rose 11.6% to over ₹12.46 lakh crore, while net collections grew 10.4% to ₹10.66 lakh crore.
Headline GST growth versus actual revenue
The distinction is particularly important when comparing headline GST collections with revenues after accounting for changes in the tax structure. According to the authors’ analysis, headline GST revenue growth slowed from 21.9% in FY23 to 11.6% in FY24, 9.4% in FY25 and 7.5% in FY26. Actual gross GST growth, after accounting for compensation cess and additional excise duty, was lower, at 5.8% in FY26, while actual net GST revenue growth was around 4%.
For Q1 FY27, headline growth stood at 10.5%, while actual gross GST growth was 1.5%. The gap narrowed in Q2 FY27, when headline growth was 15%, compared with 9.5% for actual gross GST and 8.2% for actual net GST, according to the analysis.
The experts argued that these differences matter because headline GST numbers do not necessarily provide a clean measure of the revenue available to the government after accounting for other tax components.
GST revenue growth: headline vs actual
| Period | Headline GST growth | Actual gross GST growth | Actual net GST growth |
|---|---|---|---|
| FY23 | 21.9% | 22.2% | 22.2% |
| FY24 | 11.6% | 14.0% | 14.0% |
| FY25 | 9.4% | 9.4% | 8.1% |
| FY26 | 7.5% | 5.8% | 4.0% |
| Q1 FY27 | 10.5% | 1.5% | — |
| Q2 FY27 | 15.0% | 9.5% | 8.2% |
What changed after September 2025?
The September 2025 GST changes altered the treatment of several products and levies. The compensation cess on tobacco and pan masala was abolished, while these products were moved into a revised GST structure alongside additional excise duty.
The experts pointed out that these changes can make comparisons with earlier years misleading if the different tax components are simply added together and labelled as GST.
They also highlight the treatment of revenue from additional excise duties and cess, which has implications for how much revenue ultimately forms part of the divisible pool shared with states.
States’ share also under scrutiny
The analysis argued that the issue goes beyond the Centre’s overall revenue numbers. The authors say GST re-labelling has also obscured the decline in states’ share of revenue.
Net GST revenues as a percentage of GDP declined from around 6% in FY24 and FY25 to 5.7% in FY26, according to the analysis. That compares with a pre-GST average of about 6.2%.
| Metric | Pre-GST / earlier position | FY24 | FY25 | FY26 |
|---|---|---|---|---|
| Gross GST collections (% of GDP) | 6.2%* | 6.7% | 6.7% | 6.5% |
| Net GST revenues (% of GDP) | 6.2%* | 6.0% | 5.9% | 5.7% |
| States’ share of Centre’s GST under proposed post-cess structure | — | — | — | 40% |
| Compensation cess | Separate levy | Separate levy | Separate levy | Shifted into revised structure |
*Pre-GST average cited in the analysis.
For Subramanian, Felman and Anand, therefore, assessing GST performance requires looking beyond the headline collection number and examining how revenue is classified, how much is actually retained after adjustments, and how much reaches the states.
The broader argument is that simplifying GST rates and measuring GST revenue are two different issues. While the former may have improved after the September 2025 reforms, the latter has become harder to interpret because of changes in tax labels and revenue treatment.
GST revenue performance may appear stronger on the surface than the underlying numbers suggest, as changes in tax classification have complicated comparisons across years. Arvind Subramanian, senior fellow at the Peterson Institute for International Economics and former Chief Economic Adviser to the Government of India, along with Josh Felman and Abhishek Anand, argued that GST “re-labelling” has obscured both the decline in revenue growth and the share accruing to states.
In their analysis, the authors noted that GST changes since September 2025 have simplified the rate structure and reduced rates. However, they argue that the accompanying changes in how certain taxes are classified make it difficult to assess the tax system’s underlying revenue performance.
The latest monthly data shows that gross GST collections rose 14.7% year-on-year to over ₹2.03 lakh crore in September, supported by domestic consumption and a 26% rise in revenue from imports. After refunds, net GST collections increased 18.1% to over ₹1.76 lakh crore. In the first half of FY27, gross collections rose 11.6% to over ₹12.46 lakh crore, while net collections grew 10.4% to ₹10.66 lakh crore.
Headline GST growth versus actual revenue
The distinction is particularly important when comparing headline GST collections with revenues after accounting for changes in the tax structure. According to the authors’ analysis, headline GST revenue growth slowed from 21.9% in FY23 to 11.6% in FY24, 9.4% in FY25 and 7.5% in FY26. Actual gross GST growth, after accounting for compensation cess and additional excise duty, was lower, at 5.8% in FY26, while actual net GST revenue growth was around 4%.
For Q1 FY27, headline growth stood at 10.5%, while actual gross GST growth was 1.5%. The gap narrowed in Q2 FY27, when headline growth was 15%, compared with 9.5% for actual gross GST and 8.2% for actual net GST, according to the analysis.
The experts argued that these differences matter because headline GST numbers do not necessarily provide a clean measure of the revenue available to the government after accounting for other tax components.
GST revenue growth: headline vs actual
| Period | Headline GST growth | Actual gross GST growth | Actual net GST growth |
|---|---|---|---|
| FY23 | 21.9% | 22.2% | 22.2% |
| FY24 | 11.6% | 14.0% | 14.0% |
| FY25 | 9.4% | 9.4% | 8.1% |
| FY26 | 7.5% | 5.8% | 4.0% |
| Q1 FY27 | 10.5% | 1.5% | — |
| Q2 FY27 | 15.0% | 9.5% | 8.2% |
What changed after September 2025?
The September 2025 GST changes altered the treatment of several products and levies. The compensation cess on tobacco and pan masala was abolished, while these products were moved into a revised GST structure alongside additional excise duty.
The experts pointed out that these changes can make comparisons with earlier years misleading if the different tax components are simply added together and labelled as GST.
They also highlight the treatment of revenue from additional excise duties and cess, which has implications for how much revenue ultimately forms part of the divisible pool shared with states.
States’ share also under scrutiny
The analysis argued that the issue goes beyond the Centre’s overall revenue numbers. The authors say GST re-labelling has also obscured the decline in states’ share of revenue.
Net GST revenues as a percentage of GDP declined from around 6% in FY24 and FY25 to 5.7% in FY26, according to the analysis. That compares with a pre-GST average of about 6.2%.
| Metric | Pre-GST / earlier position | FY24 | FY25 | FY26 |
|---|---|---|---|---|
| Gross GST collections (% of GDP) | 6.2%* | 6.7% | 6.7% | 6.5% |
| Net GST revenues (% of GDP) | 6.2%* | 6.0% | 5.9% | 5.7% |
| States’ share of Centre’s GST under proposed post-cess structure | — | — | — | 40% |
| Compensation cess | Separate levy | Separate levy | Separate levy | Shifted into revised structure |
*Pre-GST average cited in the analysis.
For Subramanian, Felman and Anand, therefore, assessing GST performance requires looking beyond the headline collection number and examining how revenue is classified, how much is actually retained after adjustments, and how much reaches the states.
The broader argument is that simplifying GST rates and measuring GST revenue are two different issues. While the former may have improved after the September 2025 reforms, the latter has become harder to interpret because of changes in tax labels and revenue treatment.