Government adds sanitary napkins to the 12% GST slab. Here's why

NEW DELHI: The Finance Ministry has said pre- goods and services tax sanitary napkins attracted a total tax of 13.68%, therefore were put in the 12% slab. It said reducing GST on sanitary napkins to nil would lead to complete denial of input tax credit to domestic manufacturers and put them at a disadvantage vis a vis imports as they would also face zero IGST.

Raw materials for manufacture of sanitary napkins attract GST of 18% of 12%, even with 12% GST on sanitary napkins, there in an inversion in the GST structure, it said. 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% IGST on their imports, with no additional financial costs on account of fund blockage and associated administrative cost of refunds.

If the GST rate on sanitary napkins were to be reduced from 12% to 5%, it will further accentuate the tax inversion and result in even higher accumulated ITC, with correspondingly higher finical costs on account of fund blockage and associated administrative cost of refunds, putting domestic manufacturers at even greater disadvantage vis-à-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-à-vis imports, which will be zero rated ," it said.