A ministerial panel on GST rate rationalisation has backed the Centre’s plan to overhaul the indirect tax structure by pruning four slabs into a two-tier system, retaining 5% and 18% while introducing a 40% rate for luxury and sin goods.

The Group of Ministers (GoM), headed by Bihar deputy chief minister Samrat Choudhary, will recommend the proposal to the GST Council for a final decision, even as concerns over possible revenue losses remain.

“We discussed the Centre’s proposal to remove the 12% and 28% slabs. We have supported this and will recommend it to the GST Council for a final decision,” Choudhary told reporters after the GoM’s meeting.

Final decisions on all matters pertaining to GST are taken by the GST Council as GoMs are only recommendatory bodies. The six-member GoM has three members from BJP-ruled states of Bihar, Uttar Pradesh and Rajasthan, and three members from the Opposition-ruled states — Karnataka, Kerala, and West Bengal.

According to people familiar with the matter, most states are willing to sign off on the rate rationalisation if the move benefits the common man — but they do not want to take any hit on their revenues. According to an SBI research report, estimated revenue loss due to the changes could be ₹85,000 crore per annum and around ₹45,000 crore in the current financial year.

“In the current GST structure, the majority of revenue share comes from goods having GST rate of 18% followed by goods having GST rate of 28%,” the report said.

To be sure, the government’s thinking is that a surge in demand could offset much of the losses.

Uttar Pradesh finance minister Suresh Kumar Khanna, who is part of the GST Council, said the Centre’s proposal is in the interest of the common person. He said a considered view would be taken by the GST Council, which will also calculate revenue implications of the tax reform.

West Bengal finance minister Chandrima Bhattacharya, also part of the council, supported the proposal, calling it “pro-people” while emphasising on the need to know the revenue losses suffered by states because of the move. “Because, ultimately, if a state suffers any loss, then it boils down to the sufferance of the common man. The GST Council will discuss the rate proposal item by item.”