GST exemption on sanitary napkins offers no significant cost benefit to consumers: FICCI

Industry body FICCI has told the Finance Ministry that exempting sanitary napkins from Goods and Services Tax (GST) does not result in ‘significant cost benefit’ to consumers as companies will not get input tax credit for manufacturing.

The industry body has suggested levying GST at nominal rate like in goods supplied to the merchant exporters. The GST Council, in its meeting on July 21, decided to exempt sanitary napkins from GST. Earlier, this essential item for the hygiene and health of women, used to attract GST at the rate of 12 per cent.

Following criticisms from all across, the Council decided to remove the indirect tax from July 27. Following this, some companies lowered the prices by about 2-3 per cent against tax reduction of 12 per cent.

In a letter to the Finance Ministry, which was seen by BusinessLine , the chamber said, “From the stand point of companies manufacturing in India, the proposed changes would trigger multiple challenges which could erode the efficacy of the beneficial interest of the said amendment.”

Key concerns

It has listed five key concerns. “The proposed amendment is contrary to press release dated July 10, 2017 issued by the Ministry of Finance on sanitary napkins and against the ‘Make in India’ campaign, as it offers an unfair competitive advantage to importers which is contrary to the spirit of a level playing field in the domestic market.”

The release had said that in pre-GST, they attracted concessional excise duty of 6 per cent and 5 per cent VAT and, the pre-GST estimated total tax incidence on sanitary napkins was 13.68 per cent. Therefore,“12 per cent GST rate had been provided for sanitary napkin. It had said that reducing the GST rate on sanitary napkins to ‘nil’, will result in complete denial of ITC to domestic manufacturers of sanitary napkins and zero rating imports. This will put domestically manufactured sanitary napkins at a huge dis-advantage vis-à-vis imports, which will be zero rated.

Listing other concerns, the chamber said there is a challenge in servicing fixed rate contracts including, government contracts. Also, the manufacturers would need to proportionately reverse input tax credit, which “shall lead to administrative burden and exposures to litigations.” Litigation cost would further add to the operational cost.

The chamber has recommended that input tax credit on supply of sanitary napkins be allowed in two ways: a) levy of nominal GST rate (say 0.10 per cent) on supply like in goods supplied to merchant exporters b) alternatively, GST provisions be amended to provide for availment of input tax credit on pronouncements made by supplier of sanitary napkins.

It also said that if nominal rate of GST is not possible, then the Government should “allow procurement of input/input services/capital goods without payment of GST for end use in manufacture of sanitary napkins.” Similar provision is available under custom law and was also available during the pre-GST regime.

COMMENT NOW