With rising criticism on putting sanitary napkins in the 12 per cent tax slab in the GST regime, the Finance Ministry on Monday said that reducing the GST rate on it will put domestic manufacturers at a disadvantage compared to imports due to the issue of inverted duty structure.

The Ministry clarified that the tax incidence on the item before GST was slightly higher. In the pre-GST regime, tax incidence for companies that make sanitary napkins stood at 13.68 per cent.

“Therefore, 12 per cent GST rate had been provided for sanitary napkins,” it said in a statement.

The Ministry further pointed out that as raw materials for manufacturers of sanitary napkins attract GST of 18 per cent and 12 per cent, even with 12 per cent GST on sanitary napkins, there is an inversion in the GST structure.

“Though, within the existing GST law such accumulated ITC (input tax credit) 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,” the official statement added.

Therefore, the Ministry believes that putting these feminine hygiene products in the 5 per cent tax slab will further accentuate the tax inversion.

“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,” the Ministry added.

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