Why the fight to remove tax on Sanitary Napkins might actually increase the cost

Most of us have heard or participated in debates and discussions on removing GST of 12% on Sanitary Napkins in India. However, the arguments and the fight are misplaced and not rooted in the technicalities of the taxing structure. Here is everything you need to know to make an independent decision on whether removing the tax on Sanitary Napkins will help the consumer or not.

Why are we using false data and assumptions?

The recent activism on taxing Sanitary Napkins is largely based on two points:

  1. Only 12% Indian women currently use Sanitary Napkins and the remaining 88% use unsanitised cloth, ashes and husk sand.
  2. If Sanitary Napkins are made tax free, it will become affordable and many women will start using it.

Therefore, any debate on this issue should first look into these two aspects and understand how valid they are.

  1. The 12% statistic is not even a published research paper. It is something that was published in a Times of India article in 2011 as a supposed study that was done by A.C Nelisen and NGO Plan India. However, the actual study itself was never found. So basing an entire argument on this study is itself highly questionable. Then, we need to ask the question, if it is not 12%, then what is the actual penetration of Sanitary Napkins in India? For this, we can look at the 2015-16 National Family Health Survey (NFHS) which found that overall 57.6% women in India are currently using Sanitary Napkins. Of the rural women they surveyed, 48.5% and among urban women it was 77.5%. This shows that clearly the 12% statistic was a cooked up number. That means our fundamental assumption that Sanitary Napkins need to be propagated because of its poor use in India is in itself false.

Link to TOI’s 2011 article – http://timesofindia.indiatimes.com/india/70-cant-afford-sanitary-napkins-reveals-study/articleshow/7344998.cms

Link to NFHS Study – http://rchiips.org/nfhs/factsheet_NFHS-4.shtml

  1. There is an assumption that reducing the current GST rate from 12% will make Sanitary Napkins suddenly affordable. Let’s put numbers to this and see how much difference it will actually make. At present we get a pack of 7 pads for Rs. 29 (Whisper Choice, without wings). Assuming this includes a tax of 12%, removing the tax entirely will bring the cost down to Rs. 25.8. So there will be a difference of Rs. 3.11. If you take the Whisper Choice pads with wings, currently a pack of 6 pads of will costs Rs. 36. Without tax, it will come to Rs. 32.14, and the difference will be Rs. 3.86 only. So are we fighting for this meagre amount of Rs. 3-4? In all our experience with women from low income households in rural and urban areas, the affordability of Sanitary Napkins was never an issue. The fact that 57.6% women are using it already is testimony enough.

The bulk of the cost of Sanitary Napkins has nothing to do with the tax amount, and we will never know the actual costs of manufacturing these pads unless the manufacturers reveal it. So reducing the tax to 0 will hardly have an impact on costs for individual consumers.

The technical complexity of reducing the tax

We need to also understand the Input Tax Credit (ITC) mechanism and how it works if the tax of the final product becomes zero. Input tax is the tax amount for raw materials. If the tax amount of the final product is greater than input tax, the seller will get a refund for the difference. However in case of Sanitary Napkins, the input tax of raw materials is around 18% and that of finished product is 12%. Therefore there will be a tax inversion, making it complex process to claim input tax credit.

Here is the statement from the Ministry of Finance published in the Press Information Bureau posted on July-10-2017, regarding why the GST rate for Sanitary Napkins have been fixed at 12%. Link – http://pib.nic.in/newsite/PrintRelease.aspx?relid=167293

Press Information Bureau
Government of India
Ministry of Finance


10-July-2017 18:48 IST
GST rate for 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% and 5% VAT and, the pre-GST estimated total tax incidence on sanitary napkins was 13.68%.  Therefore, 12% 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% GST rate

1.      Super Absorbent Polymer

2.      Poly Ethylene Film

3.      Glue

4.      LLDPE– Packing Cover

b)  12% GST rate

1.      Thermo Bonded Non-woven

2.      Release Paper

3.      Wood Pulp

As raw materials for manufacture of sanitary napkins attract GST of 18% of 12%, even with 12% 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 disadvantage vis-à-vis imports, which will also attract 12% 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% to 5%, it will further accentuate the tax inversion and result in even higher accumulated ITC, with correspondingly higher financial costs on account of fund blockage and associated administrative cost of refunds, putting domestic manufacturers at even greater disadvantage 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 disadvantage vis-à-vis imports, which will be zero rated.

So we see that actually reducing the tax from 12% to 0% is likely to be more of a problem than a solution. If the manufacturers are unable to claim Input Tax Credit (ITC), it is likely that they will eventually increases the prices to make up for the higher financial costs.

By making it a woman’s rights issue, all we have done is confuse the public and ourselves. Distraction is the only purpose served when we forcibly attach wrong statistics, online petitions and emotional outbursts to this issue. The technicalities involved have hardly been debated or even understood.

Let’s get the facts right, before we set out to fight.

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