The removal of GST on sanitary napkins will neither benefit consumers nor help the domestic industry. The industry will be denied benefit of input tax credit, which in turn, may not lower the prices of the sanitary napkins much. In fact, tax officials see more imports after the rate reduction.
“Sentiments brought down rate on sanitary napkins, it had nothing to do with economic rationale,” a Finance Ministry official said, referring to the decision. The GST Council, in its 28thmeeting on Saturday, decided to bring GST rate on sanitary napkins to zero from 12 per cent, thus meeting the long-pending demand from women organisations and political parties. The message was if the tax component is creating a wrong perception as well generating lower revenue, then it is better to improve the perception.
Anita Rastogi, Partner (Indirect Taxes), PwC, said exemption means no GST will be levied on sale of sanitary napkins. But the price determination also involves credit of tax paid on procurements. “Going forward, no credit would be available since exemption has been granted... thereby tax on procurements will become a cost which will be passed on to the consumers. So, effective benefit to consumer will be less than 12 per cent,” she said adding the domestic industry may get impacted if the cost structure at the country of export is less than that of India, which will depend on case-to-case basis.
The domestic industry will have to face problems on two fronts: its own cost as well as from foreign manufacturers. The official said domestic companies will not be able to take advantage of input tax credit.
The Finance Ministry, in fact, had issued a press release on July 10, 2017, countering criticisms on not lowering the indirect tax. It had then 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 napkins.”
The release said that 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 put domestically manufactured sanitary napkins at a huge dis-advantage vis-à-vis imports, which will be zero rated.”
Basic custom duty
At present, the basic custom duty is 10 per cent. With ‘nil’ GST, the imported sanitary napkin will not attract IGST. Since cost of imported sanitary napkin is cheaper, it will flood the market. According to official, if basic custom duty is hiked, then there is apprehension that more imports will be done on under-invoicing. Also, sanitary napkin has been included in the free trade agreements (FTA) with many countries, which means lower import duty. There is also a feeling that dominant players in the domestic market such as P&G have facilities abroad too, so it could go for importing its own brand rather than manufacturing here.