Why Sanitary Pads Are Taxed Under GST- Here Are The Facts

How insensitive the government is for taxing the sanitary pads under 12% bracket!!

It is not a luxury but a necessity for the women.

We have often seen many celebrities and common people making such assertions on the government. I am sure every woman feels agitated and angry about women personal hygiene product being taxed. People wants government to slash all the taxes on sanitary pads as it is an essential part of menstrual hygiene.

Such thoughts are natural for the citizens as they are unaware of complicated tax determination mechanism of product under GST.

In this article I will try to explain the reasons why sanitary napkins cannot be made tax-free. We will also see how it will adversely affect our domestic industry if sanitary pads are made tax-free.

Let us see how the tax mechanism works for the tax rate determination of a product.

The reasons why government cannot reduce GST rates on sanitary pads to NIL are:

  1. Imports will become very cheap and will ruin the indigenous (local) manufacturers.

  2. Blockage of working capital for domestic manufacturers which will subsequently lead to higher interest rates and increase in cost of production locally.

Before proceeding with the explanation of above reasons, we all should be aware of the fact that tax burden before GST era on sanitary pads was 13.68% while the GST rate is kept as 12% . So, already we are paying less for the pads as compared to what we were paying earlier.

Let’s understand the first reason:

If GST rate is reduced to nil rate, it will result in Zero Rating Imports. Currently the Indian sanitary napkins are ruled by multinational foreign companies like Procter & Gamble, Johnson and Johnson, Unicharm, etc. These MNCs are having a market share of approximately 95%. Among the various brands Whisper which is owned by Procter & Gamble is the most popular brand among urban women for personal hygiene. The cost of production of these MNCs are very low and if GST rates are reduced to Nil, the imports will be zero rated which will in turn put our domestic manufacturers at a very disadvantageous position. Though India has come up with its PadMan but it has a long way to go to compete at international level from these MNC. Hence these pads cannot be made as zero rated under GST.

Let’s understand the second reason:

Before understanding the second aspect, we need to understand the concept of input tax credit. GST is a tax on value addition. It means a tax will be levied at every transaction where a value is added. This transaction chain starts right from procurement of raw materials and ending final sale to consumers. The businessmen, in this transaction chain other than final consumer receives reimbursements for the previous taxes that they’ve already paid. This reimbursement of previous tax paid is called input tax credit.

Let’s start with an example of sanitary napkins only. Here, let’s assume the transaction chain from raw material to final consumers is composed of the following parties:

sanitary pads example

A – Raw Material producer and sells to B

B – Manufacturer who manufacture pads and procure raw material from A         

C – Wholesaler – Who purchases product in bulk from B 

D – Traders/ shop keepers who purchases in small lots from C

E –   Final consumer i.e. us.

Step 1: B purchases Raw material from A for Rs.100 + GST rate of 18% (18) totalling to Rs 118 and pay Rs 118 to A as purchase price.

Step 2: B sells the pads to C after adding its manufacturing cost and profit margin for Rs 148 + GST of 28% (41.44) totaling to Rs189.44/. B receives Rs 189.44 from C as sales price.

At this instance, tax liability of B is Rs 41.44 which is received as GST from C. B should go and deposit this amount to government account. Here comes the role of Input tax credit which means B can get reimbursement of taxes which he has already paid. It implies that B can reduce his/her tax liability by Rs 18 from Rs 41.44 which s/he has already paid to A while purchasing raw material from A.  So, net tax liability will be Rs 41.44 minus 18 = Rs. 23.44. This Rs 18 is called as Input tax credit.

Now, let us replicate this same example in real life, currently tax rate of raw material for sanitary pads i.e. Cotton are taxed at 18% and final product i.e. sanitary pads are kept under 12%. If government brings sanitary pads under nil rate or exempt them from tax, then the Input tax credit will be denied because as per law if final product is exempted then Input tax credit is not allowed. Denial of Input tax credit will automatically lead to increase in cost of product. Hence, as per our example Tax liability of B will be Rs 41.44 and not Rs 23.44/-

Furthermore, in above scenario suppose government comes up with policy of refund of Input tax credit and if final product is Nil rated which as per our example means Tax liability of B will be Rs 41.44 but B will be able to claim only Rs 18 as refund from the government.

Since we all know the refund procedure is a time-consuming activity. Hence, this will result in blockage of working capital fund of our domestic producers which in turn will lead to increase in interest rate as businesses will borrow capital from banks, financial institutions or money lenders. This whole process will put our indigenous manufacturers in uncomfortable positions and will ruin our domestic manufacturers.

Hope this clarifies why GST rates for sanitary pads cannot be made nil.

Share your views on this topic with us. Feel free to comment.!!

Divya Rai

A CA by profession, currently working as a tax expert with India's leading Government Petroleum firm.

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