Impact of GST Exemption on Sanitary Pads and Inverted Tax Structure
The Indian government has fully removed GST on sanitary pads, setting the tax rate to 0%. This article explores the consequences, particularly the creation of an inverted tax structure where input materials are taxed at 12% or 18%. This situation disadvantages local manufacturers by denying input tax credit, while inadvertently benefiting importers. The change, effective July 2018, has shown minimal real benefit to consumers due to unchanged manufacturing costs for domestic producers.
Impact of GST Exemption on Sanitary Pads and Inverted Tax Structure
The Indian government has fully removed the Goods and Services Tax (GST) on sanitary pads, implementing a zero percent tax on their sale. This document explores the effects of this GST exemption on sanitary pads, particularly focusing on the implications of an inverted tax structure.
Understanding the GST Application on Sanitary Pads and the Inverted Tax System
The GST rate for selling sanitary napkins is currently zero. However, the raw materials used in their production are subject to GST at varying rates:
| Description | GST rate |
|---|---|
| Super absorbent polymer | 18% |
| Polyethylene film | 18% |
| Glue | 18% |
| LLDPE- packing cover | 18% |
| Thermo bonded non-woven | 12% |
| Release paper | 12% |
| Wood pulp | 12% |
The difference in tax rates, where input materials are taxed at 12% or 18% but the final product's sale is at 0%, establishes an inverted tax structure within the GST framework. Although manufacturers are eligible to claim refunds for input taxes, this process incurs extra financial and administrative expenses for their businesses. Conversely, importers gain a competitive edge since they are only liable for customs duty, rather than a combination of customs duty and GST. Therefore, the GST exemption on sanitary pads predominantly advantages importers over local producers. This scenario enables imported goods, which might not meet the same quality standards, to easily penetrate the market due to their lower pricing.
The Impact of Exempting Sanitary Napkins from GST
Initially, sanitary pads were taxed at a 12% GST rate. However, as of July 21, 2018, their sale became completely exempt from GST. While this decision was largely seen as a positive development, its tangible benefit to end-users was quite limited. The removal of GST on the output supply prevented manufacturers from claiming Input Tax Credit (ITC). Since manufacturing costs remained unchanged, producers had no financial incentive to reduce prices for consumers.
Detailed GST Rates and HSN/SAC Codes for Sanitary Pads
| HSN | Description | CGST | SGST | IGST |
|---|---|---|---|---|
| 96190010 96190020 | Sanitary towels, sanitary napkins, tampons | 0% | 0% | 0% |