US revenue growth will drop to 9% despite strong GST collections: study

State revenue growth will fall to 7-9% in FY23, although nice GST collections will help the increase, according to a report on Wednesday.

Revenue growth galloped 25% in FY22 on the back of a lower base in the pandemic-hit FY21, according to the report by ratings agency Crisil, which analyzed 17 states representing 90% of total GSDP.

In FY23, healthy fiscal momentum will support revenue growth, with Center Goods and Services Tax (GST) collections and deconcentrations – which together account for up to 45% of state revenue – which should post a double-digit growth, he said.

The agency’s senior director, Anuj Sethi, said the biggest boost to revenue growth will come from the state’s overall GST collections, which had already rebounded 29% in FY22.

“We expect this momentum to continue and recoveries to increase another 20% this fiscal year, supported by improved compliance levels, a higher inflationary environment and stable economic growth,” Sethi said.

Flat or low single-digit growth in Petroleum Sales Tax revenue (8-9% of total revenue) and Fifteenth Finance Commission recommended subsidies (13-15%) will act as moderating factors, a he declared. .

The states’ share of central taxes is expected to increase further this fiscal year, the agency said, adding that while the proportions are determined by the Finance Committee, the overall kitty is tied to the central government’s gross tax revenue. That pool, which grew 40% last fiscal year, is expected to grow another 15% this fiscal year, he said.

Fuel tax collection is expected to remain virtually unchanged, as gains from a 25% increase in the price of crude oil and better sales volumes will be offset by reductions in central excise duties on gasoline and diesel in November 2021 and May 2022, and certain state sales tax reductions.

Center grants, including center-sponsored programs, finance committee grants and revenue shortfall, are expected to grow only marginally this fiscal year, he said.

Additionally, GST offset payments, which accounted for 7-9% of revenue in the past two years, will also end with the expiration of the offset period on July 1, 2022, he said.

The outlook is based on an assumption of real GDP growth of 7.3% and no impact from the lockdown, he said, adding that a slowdown in economic activity due to higher than expected inflationary pressures could have a negative impact on revenues.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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