Amid demands for an exemption for sanitary napkins under the Goods and Services Tax (GST) regime, the Finance Ministry clarified that the GST rate is of 12 per cent, lower than 13.68 per cent in the previous indirect tax regime. “The tax incidence on this item before and after GST is the same or less,” a finance ministry statement said. In pre-GST, sanitary napkins attracted a concessional excise duty of 6 per cent and 5 per cent VAT. The total tax incidence on sanitary napkins was 13.68 per cent after considering cesses, it said.
“Therefore, 12 per cent GST rate had been provided for sanitary napkin,” it said. Raw materials used for manufacturing sanitary napkins include super absorbent polymer, polyethylene film, glue that are being taxed at 18 per cent under GST. Other raw materials such as thermo bonded non-woven, release paper and wood pulp attract GST of 12 per cent, it said.
As raw materials for manufacture of sanitary napkins attract GST of 18 per cent and 12 per cent, a 12 per cent GST on sanitary napkins, implies that the difference qualifies for input tax credit. “Though, within the existing GST law such accumulated ITC will be refunded, it will have associated financial costs [interest burden] and administrative cost, putting them at a disadvantage vis-à-vis imports, which will also attract 12 per cent IGST on their imports, with no additional financial costs on account of fund blockage and associated administrative cost of refunds,” it said.
If the GST rate on sanitary napkins was reduced to 5 per cent, it will further accentuate the tax inversion and result in even higher accumulated input tax credit, with correspondingly higher financial costs on account of fund blockage and associated administrative cost of refunds, putting domestic manufacturers at even greater disadvantage vis-a-vis imports.
“Reducing the GST rate on sanitary napkins to nil, will however, result in complete denial of ITC to domestic manufacturers of sanitary napkins and zero rating imports. This will make domestically manufactured sanitary napkins at a huge disadvantage vis-a-vis imports, which will be zero rated,” it added.