The Union government’s decision to scrap the goods and services tax (GST) on sanitary napkins is unlikely to result in a proportionate reduction in costs, according to an expert.
While imports would benefit from zero GST on the product, domestic manufacturers would suffer a huge disadvantage vis-à-vis imports as it would result in the complete denial of input tax credit, leading to an increase in the procurement cost.
Mr. R. Muralidharan, senior director, Deloitte India, said he believed the reduction of GST from 12% to 5% would have actually helped the industry.
“Ideally, reduction of GST to 5% tax could have helped the companies to recover the part of the input tax credit. “But by making it zero, imported items would become cheaper as the input tax credit will be added to the cost of the domestic manufacturers.
Higher input tax credit
“A nominal tax is always better when the input tax credit is higher,” he told The Hindu.
Linked with “Beti Bachao Beti Padhao Yojana” (government campaign aimed at improving the efficiency of welfare services intended for girls), this move would surely help tackle one of the biggest barriers to girls’ education as more of them would be able to go to school instead of staying back at home due to lack of access to hygiene products and sanitation facilities at school., said Santosh Dalvi , deputy head, indirect tax, KPMG in India.
“Though the GST rate has been reduced to ‘nil’ whether the manufacturers would be reducing the prices is something we need to wait and watch,” Mr. Dalvi told The Hindu adding that GST reduction on sanitary napkins seems to be a positive move with good intention, whether the actual benefit would reach to all concerned, is something to see.
“Small manufacturers, who have a turnover below ₹1.5 crore on an annual basis and registered under Composition scheme may gain due to this,” Mr. Dalvi added.
However, other domestic manufactures would be forced to in-built the loss of Input Tax Credit cost in the product cost leading to surge in the price.
“The latest decision by [the] GST Council to exempt GST on sanitary pads is a welcome step,” Bipin Sapra, tax partner, EY India told The Hindu.
“However, putting the item under the exemption list would break the credit chain for the companies.This would mean that taxes paid on inputs by the companies would become cost in supply chain and same is likely to be passed on to the consumers,” he said.
“The reduction in output tax would definitely mean lower tax burden on the consumers and hence reduced prices, but to pass on the complete benefit to this product similar exemption should be provided on inputs and raw materials used in the manufacture of these sanitary pads,” he added.
Leading manufacturers of sanitary napkins, such as Procter & Gamble (P&G) and Johnson & Johnson (J&J) did not respond to queries made by this paper.
The GST Council, at its meeting held on July 21, recommended various changes in GST rates on goods and services as well as in the policy. One such key decision was scrapping GST on sanitary napkins.
