In a major breakthrough, the Centre has been able to arrive at a consensus among the states to fix a four-tier tax structure under the goods and services tax (GST) regime, scheduled to be effective from April 1 next year. Once implemented, it will pave way for a unified common market. The new slabs agreed are 5 per cent, 12 per cent, 18 per cent and 28 per cent, where goods and services will be taxed while keeping essential items at zero. This was decided by the GST council on Thursday in New Delhi. Luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks, will be taxed at the highest rate and would also attract a cess in a way that the total incidence of tax remains at almost the current level, an official said after the meeting. The chief economic advisor Arvind Subramanian said the rate structure should probably serve to lower inflation and should help bring it down. About 50 per cent of the items in the CPI basket like foodgrain, edible oils and sugar would not be taxed at all to safeguard the interest of poor and keep inflation under check. The impact of GST on inflation and different sectors of the economy can be evaluated only after the committee decides on rates for different products, said Devendra Kumar Pant, chief economist with India Ratings and Research. There would also be two standard tax rates of 12 and 18 per cent, which would apply to services. According to Rajeev Dimri, of BMR & Associates LLP, “a rate of 12 and 18 per cent for most of the items and services keeps the overall tax incidence below or around the existing tax costs. But services may become dearer by getting pushed to 18 per cent slab.” The lowest rate of 5 per cent would be for common use items under the GST regime, but the council will meet again on Friday to define the goods that will be kept under this slab. The all-powerful GST Council, headed by Jaitley, has also decided to impose an additional cess. The cess will take care of the difference between the current incidence and the 28 per cent rate for luxury cars and demerit goods. Tobacco currently attracts about 65 per cent tax in some states like Rajasthan and aerated drinks about 40 per cent. Jaitley said highest tax slab would be applicable to items, which are currently taxed at 30-31 per cent (excise duty of 12.5 per cent plus VAT 14.5 per cent). “Finally the consensus is that these items, with a cascading effect of 30-31 per cent, will now be taxed at 28 per cent, but with a rider. And the rider is that in this category there are several items, which are now being used increasingly by a very large number of people, particularly the lower middle class. So for them, 28 or 30 or 31 per cent rate will be higher. Which is why we are transferring them to 18 per cent,” he said. From the perspective of overall tax incidence, levy of cess on luxury items and demerit goods should be acceptable to the industry as these goods face a similar tax burden presently, Dimri said. “Hopefully” the tax impact on common man would be marginally lower, Jaitley said adding that a committee will work out the final list of items for each tax bracket. Soap, oil, shaving stick, toothpaste and such products will likely to move down to 18 per cent slab.