MUMBAI: With the government not giving in to the demands of the Feminine and Infant Hygiene Association (FIHA) to provide input tax credit (ITC) on sanitary napkins , large organised players are said to be working on reducing product prices in the range of 1.5-2.5 per cent. Contrary to the general expectation that sanitary napkin prices would reduce by 12 per cent following the GST exemption, the price reduction would only be marginal in the absence of ITC .Industry sources said companies are working on the new prices, which would come into effect once the GST notification is issued. When contacted, Procter & Gamble India (P&G) and Johnson & Johnson (J&J) — the two large players in the roughly Rs 4,500-crore feminine hygiene market — declined to comment.FIHA is represented by companies like J&J, P&G, Dima Products, Kimberly Clark , Soothe Healthcare , Unicharm , Saral Designs , Shekhani Industry and M D Hygiene. The association issued a statement on the tax exemption, which is proposed to come into effect from July 27. In its statement, FIHA said, “While it was well intended, this decision is unlikely to achieve the objective for which it was designed — to make this essential category more affordable to consumers. The exemption of the finished product of sanitary napkins from GST effectively denies ITC to companies manufacturing in India. As a result, in order to offset the loss, the companies will not be able to pass any significant benefit to the consumers.”FIHA said, should the ITC be allowed to all manufacturers who make in India, the industry would be able to pass on the benefit received from the rate cut to customers. If a comparison is drawn between the earlier scenario where GST was charged at 12 per cent but ITC was available, and the new scenario where GST is zero but there’s no ITC, the difference in tax paid by a manufacturer would be around 1.2 per cent (see graphic). The figures and margins are hypothetical, but provide a direction. If margins or purchase price varies, then it may differ from manufacturer to manufacturer.However, tax experts said the concern that prices of sanitary napkins could go up after the GST exemption are unfounded. Grant Thornton India partner Suresh Nandlal Rohira said, “Although large corporates are manufacturing these pads, non-levy of GST on the outward may not increase the prices effectively as wrongly understood, as the cost of unutilised ITC would be lesser than the GST charged on outward sale price, ie @12 per cent. The rationale lies in understanding the math of costs involved, value-addition by the manufacturer, ITC available — which may not be available if the outward GST is exempt — and consequently the tax absorbed to be passed on to the customer. Therefore, taking these combinations, a buyer may still land up paying lesser GST eventually (ie, the absorbed unutilised credit) than the levy on outward sale charged by the seller.”To promote rural hygiene , Rohira said the government should consider some additional commercial hygiene on exempting such products end-to-end or incentivising the input tax cost for the manufacturers supplying to rural areas for the real benefits to the consumers.Small- and medium-sized players, on the other hand, are staring at a bleak scenario where imports could become cheaper, making it uneconomical and difficult for domestic players. SMEs who have taken loans to set up such facilities are a worried lot. Several of them have bagged government tenders to supply sanitary napkins at existing rates, which, if not respected, could land them in legal wrangles.Sanitary napkins have a very low penetration of around 20 per cent in India, with the levels being abysmally low in the hinterland. “If the government’s intention is to usher in better hygiene for females, this is a half-hearted approach,” said a manufacturer, who claims to have accumulated huge credit on his books, which would now become zero.