New Delhi, Sept. 1 -- Heartburn in state capitals looms over a landmark indirect tax reform expected this week, given that a proposal to rework rates and raise spending could also sap tax revenue.

While the Centre will assure states that it will examine their concerns at the Goods and Services Tax (GST) Council meeting over Wednesday and Thursday, it does not plan to compensate them for losses like in the early years of GST, two people aware of the matter said.

The GST restructuring aims to simplify the current multi-tiered system into a two-slab structure of 5% and 18%, while removing the 12% and 28% rates and introducing a special 40% rate for luxury and "sin" goods. The restructuring is expected to shrink this year's combined GST col...