Govt defends 12% tax on sanitary napkins

Govt defends 12% tax on sanitary napkins

Govt defends 12% tax on sanitary napkins
The government on Monday defended the 12% GST rate on sanitary napkins, saying a lower rate would put domestic manufacturers at a “huge disadvantage”.

It said the actual tax incidence on sanitary napkins after the announcement of the Goods and Services Tax were either the same or less than prior to GST.

“In pre-GST, they attracted a concessional excise duty of 6% and 5% VAT, and the pre-GST estimated total tax incidence on sanitary napkins was 13.68%. Therefore, 12% GST rate had been provided for sanitary napkins,” the finance ministry said in a statement.

Besides, it said the raw materials for manufacturing sanitary napkins such as super absorbent polymer, poly ethylene film and glue are taxed at 18%. Most of the raw materials such as wood pulp are imported.

“Even with 12% GST on sanitary napkins, there is an inversion in the GST structure. Though, within the existing GST law such accumulated input tax credit (ITC) will be refunded, it will have associated financial costs [interest burden] and administrative costs, putting them at a disadvantage vis-à-vis imports,” the statement read.

The ministry said if the GST rate on sanitary napkins was to be reduced from 12% to 5%, it would further accentuate the tax inversion and result in a higher accumulated ITC, with correspondingly higher financial costs on account of fund blockage and associated administrative cost of refunds.

This would put the domestic manufacturers at an even greater disadvantage vis-à-vis imports, it added.

Reducing the GST rate on sanitary napkins to nil, will however, result in complete denial of ITC to domestic manufacturers and zero rating imports.

This will put domestically manufactured sanitary napkins at a huge disadvantage vis-à-vis imports, which will be zero rated, the finance ministry said.

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