If the rate is cut to 5%, it will accentuate the tax inversion, the government says
The finance ministry on Monday said the tax incidence on sanitary napkins before and after the goods and services tax (GST) is the same or less and reducing the current 12% rate will put domestic manufacturers at a greater disadvantage compared to imports.
In an official statement, the ministry said that sanitary napkins attracted a concessional excise duty of 6% and 5% VAT pre-GST and the estimated total tax incidence on sanitary napkins was 13.68%.
Therefore, 12% GST rate had been provided for the sanitary napkin.
Major raw materials for the manufacture of sanitary napkins and their respective GST rates are as follows: 18% GST rate for the super absorbent polymer, polyethylene film, glue and LLDPE– Packing Cover. While 12% GST rate has been done for thermo-bonded non-woven, release paper and wood pulp, the statement said.
As raw materials for the manufacture of sanitary napkins attract GST of 18% and 12%, even with 12% GST on sanitary napkins, there in an inversion in the GST structure.
Though within the existing GST law such accumulated Input Tax Credit (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 finical 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 ," it said.
VEXED MATTER
- If the rate is cut to 5%, it will accentuate the tax inversion, the government says
- It will result in even higher accumulated input tax credit, it says
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