Earlier, the government would pay input credit. But now, since the final product is not taxed, manufacturers will have to add it to the cost of the pads.
New Delhi: Women across India have welcomed the government’s move to reduce the GST rate on sanitary napkins from 12 per cent to nil. However, experts say that despite the rate cut, the price of sanitary napkins will drop only marginally or could even remain unchanged, because manufacturers will no longer be able to claim input credit.
Earlier, when the tax levied on pads was 12 per cent, the government would refund the taxes paid on inputs to avoid cascading or double taxation. However, now since the final product is not taxed, manufacturers will be unable to avail input credit, which then becomes an additional cost for them.
The major raw materials used to produce sanitary napkins include glue, super-absorbent polymer, poly-ethylene film and packing material — all of which are taxed at 18 per cent — and thermo-bonded nonwovens, release paper and wood pulp, which are taxed at 12 per cent.
Minimal impact
According to Waman Parkhi, partner-indirect tax at KPMG, the price of the sanitary pads will remain unchanged or will dip only marginally.
“Assume that a pad has a selling price of Rs 100 and is taxed at 12 per cent. The product will be sold at Rs 100 plus Rs 12 tax, i.e. Rs 112,” said Parkhi.
“For the manufacturer, assume the inputs cost Rs 80, and are taxed at an average of 15 per cent. By this logic, the manufacturer pays Rs 12 as tax. Thus, in this case, the tax does not become part of the manufacturer’s cost.
“If the sanitary napkin is exempted, tax paid to input suppliers would become a cost and product would have to be sold at Rs 112. The product price would therefore not change despite the product being exempted,” said Parkhi.
“Unless there is a decrease in the cost of raw materials or the tax paid on raw materials, the price of the sanitary napkins will not change much,” he said.
Trisha Shetty, the founder of NGO SheSays — which led that movement ‘Lahu ka Lagaan’ urging the government to slash the GST on sanitary pads — admitted that while the government’s move was a big victory for women, it would not significantly impact the price of pads.
“This is why we have also requested a price cap on pads,” Shetty said.
Anand Shahi, chairman of the Health and Hygiene Initiatives, which manufactures and imports sanitary napkins, said the reduction in the price will not be more than Rs 2 or 3.
Domestic vs foreign manufacturers
The government had consistently maintained that it was important to keep the GST on sanitary napkins in order to avoid giving an advantage to foreign manufacturers.
In 2017, G.G. Pai, director of the Tax Research Unit at the Central Board of Excise and Customs had told ThePrint: “Currently most pads are imported, and tax exemption will fill the pockets of MNCs.”
Pai had further said that such a move would kill the scope of initiatives such as ‘Make in India’.
Parkhi agreed that it could be cheaper to import than manufacture in India. Using the example above, he said: “If the final product can be imported at Rs 100 and the customs duty is only Rs 10, then it may be cheaper to import than manufacture in India.”
According to economist Rupa Subramanya, the move to cut GST would cause Indian manufacturing to suffer and would privilege imports against it.