GST Growth Masks a Widening State Revenue Divide

India's Goods and Services Tax turned nine years old on July 1, 2026, and the headline numbers look good. Domestic collections have more than tripled since the first full year of operation, rising from ₹8.74 trillion in 2018-19 to ₹16.70 trillion in 2024-25. Set aside the COVID year, when collections fell 8.4%, the only annual decline in GST's history so far, and the system has been remarkably resilient. Collections rose 26.75% in 2021-22 alone, a V-shaped recovery that has become the defining arc of the story the government likes to tell about GST.

The story is accurate as far as it goes. But it is a national average, and national averages can be polite fictions. Behind the aggregate, state-wise data from the GSTN Statistics Portal, computed directly from every annual collection file from 2017-18 to 2024-25, reveal a fiscal geography that has grown more unequal, rather than less, with each passing year.

What Numbers Say
GST is a value-added tax, which means exporters can reclaim the tax they paid on inputs used in goods sent abroad. These refunds are legally correct and economically necessary, but they rarely get a mention when the Ministry of Finance puts out its monthly collection press release.

In 2024-25, gross domestic GST stood at ₹16.70 trillion. Once ₹1.36 trillion in refunds is deducted, the net GST actually available to the government was ₹15.34 trillion, roughly 9% below the headline figure.

GST Revenue Over Eight Years

Source: GSTN Statistics Portal, Collections-Statewise and Refund-Statewise, gst.gov.in. The 2017-18 data cover July 2017 to March 2018. Refund data are available from 2020-21 onwards.

Unequal Geography
The state-wise data tell a story that the aggregate obscures.

In 2024-25, Maharashtra alone collected ₹3.60 trillion, accounting for 21.5% of all domestic GST collections. Add Karnataka, Gujarat, Tamil Nadu and Haryana, and just five states account for more than 54% of all collections, up from 52.2% in 2021-22.

At the other end of the distribution, the picture looks starkly different. The two tables below put the top and bottom performers side by side, using verified figures from the GSTN's own state-wise files.

Table 2: Top Five States, 2024-25

State	Gross (₹ billion)	Net (₹ billion)	2023-24 gross (₹ billion)	Year-on-year	Share	CAGR
Maharashtra	3,598.55	3,344.69	3,201.17	+12.4%	21.5%	21.5%
Karnataka	1,595.64	1,369.59	1,452.66	+9.8%	9.6%	20.5%
Gujarat	1,367.48	1,175.10	1,251.68	+9.3%	8.2%	16.5%
Tamil Nadu	1,311.15	1,188.99	1,213.29	+8.1%	7.9%	17.4%
Haryana	1,193.62	1,109.96	1,029.14	+16.0%	7.1%	21.4%

Table 3: Bottom Seven States and Union Territories, 2024-25

State/Union Territory	Gross (₹ billion)	Net (₹ billion)	2023-24 gross (₹ billion)	Year-on-year	CAGR	Share
Andaman and Nicobar Islands	4.82	4.74	4.28	+12.6%	Not available	0.03%
Mizoram	5.12	4.97	4.66	+2.5%	18.9%	0.03%
Ladakh	5.46	4.96	3.98	+13.3%	47.9%*	0.03%
Nagaland	6.82	6.65	7.11	-4.2%	15.1%	0.04%
Manipur	6.99	6.54	6.72	+4.0%	15.6%	0.04%
Arunachal Pradesh	12.01	11.35	13.08	-8.2%	16.6%	0.07%
Meghalaya	21.92	21.21	22.60	-3.0%	13.2%	0.13%

Source: GSTN Statistics Portal, Collections-Statewise and Refund-Statewise, 2024-25. Net equals gross collections minus refunds. CAGR is computed from 2020-21 to 2024-25. *Ladakh CAGR uses 2021-22 as the base year. Negative figures indicate year-on-year contraction.

Structural Divide
This is not an accident of administration. It reflects a structural reality that economists have understood since Arthur Lewis wrote about the dual economy in 1954 and Paul Krugman formalised agglomeration effects in 1991.

Formal economic activity clusters. Factories, technology firms, financial services companies and large trading houses concentrate in a handful of urban and industrial corridors, including Mumbai-Pune, Bengaluru, Delhi-NCR and Chennai-Hyderabad.

That is where the taxable value chain runs deepest.

GST is, by design, a tax on that formal chain. The input tax credit mechanism, which is at the heart of any value-added tax, allows businesses to claim back the tax paid on their inputs, but only when both the buyer and seller are registered under GST and file returns.

Where formal supply chains already exist, this creates a self-reinforcing compliance incentive. In Maharashtra or Gujarat, the buyer of a manufactured component demands an invoice because claiming the credit saves real money. In Nagaland or Manipur, where much of commerce still happens in cash between unregistered parties, that incentive is weak and the compliance gradient remains flat.

The problem, as public finance economist Richard Musgrave might have put it, is not one of tax design. It is one of the tax base.

Policy Response
The fiscal federalism literature, going back to Wallace Oates' foundational 1972 text, has long argued that where revenue capacity diverges structurally across subnational governments, the transfer system has to compensate. India's 16th Finance Commission, whose recommendations took effect in April 2026, retained 41% devolution of central taxes to the states but did away with Revenue Deficit Grants.

States now carry the full downside of any GST revenue shortfall, with no safety net. For Maharashtra or Karnataka, that is manageable. For Nagaland or Manipur, it is a structural exposure.

Three changes are overdue. The Finance Commission's devolution formula should include a GST performance component that directs additional transfers to states where collections persistently fall below the national median, not as charity, but as recognition that their fiscal base is structurally constrained.

A dedicated compliance infrastructure fund for the northeastern states, of about ₹50 billion-₹60 billion over three years, aimed at building tax-practitioner density, reliable broadband connectivity and access to GSTN helpdesks, would cost less than 0.04% of annual national GST collections.

The Ministry of Finance should also start reporting net GST collections, after refunds, as prominently as it reports gross collections. Karnataka's refund rate is 14.2% of its gross collection, while Gujarat's is 14.1%. The amount that actually reaches the fisc is meaningfully lower than the figure announced in the press release.

GST is a structural success and a distributional work in progress. The tax has grown, survived a pandemic and pulled millions of businesses into the formal system. What it has not done is close the gap between the states that benefit most from formalisation and those still waiting for it to reach them.

India may have one nation and one tax, but it does not yet have one revenue geography.