GST: Govt says tax on sanitary napkins lower than earlier; here's the full text of the statement

Sanitary napkins will attract a goods and services tax (GST) of 12 percent, a shade lower than 13.7 percent in the previous indirect tax regime. Clarifying on reports of tax incidence on sanitary napkins under GST, a finance ministry statement said, “The tax incidence on this item before and after GST is the same or less.” [caption id=“attachment_3799831” align=“alignleft” width=“380”]  Representational image. Wikimedia[/caption] In pre-GST, they attracted concessional excise duty of 6 percent and 5 percent VAT. The total tax incidence on sanitary napkins was 13.68 percent after considering cesses. “Therefore, 12 percent GST rate had been provided for sanitary napkin,” it said. Here is the full statement by the finance ministry on GST rate on sanitary napkins: There are some remarks made by various column writers on GST rate on sanitary napkins. It may be mentioned that the tax incidence on this item before and after GST is the same or less. Sanitary napkins are classifiable under heading 9619. In pre-GST, they attracted concessional excise duty of 6 percent and 5 percent VAT and, the pre-GST estimated total tax incidence on sanitary napkins was 13.68 percent. Therefore, 12 percent GST rate had been provided for sanitary napkin. Major raw materials for manufacture of sanitary napkins and applicable GST rates on them are as under: a) 18 percent GST rate o Super absorbent polymer o Poly ethylene film o Glue o LLDPE– Packing cover b) 12 percent GST rate o Thermo bonded non-woven o Release paper o Wood pulp As raw materials for manufacture of sanitary napkins attract GST of 18 percent of 12 percent, even with 12 percent GST on sanitary napkins, there in an inversion in the GST structure. Though, within the existing GST law such accumulated ITC will be refunded, it will have associated financial costs [interest burden] and administrative cost, putting them at a dis-advantage vis-à-vis imports, which will also attract 12 percent IGST on their imports, with no additional financial costs on account of fund blockage and associated administrative cost of refunds. If the GST rate on sanitary napkins were to be reduced from 12 percent to 5 percent, it will further accentuate the tax inversion and result in even higher accumulated ITC, with correspondingly higher finical costs on account of fund blockage and associated administrative cost of refunds, putting domestic manufacturers at even greater dis-advantage vis-à-vis imports. 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 dis-advantage vis-à-vis imports, which will be zero rated. (With PTI inputs)