New Delhi: Sanitary napkins will attract a GST rate of 12%, a shade lower than 13.7% in the previous indirect tax regime.

Clarifying on reports of tax incidence on sanitary napkins under GST, a finance ministry statement said, “The tax incidence on this item before and after GST is the same or less." In pre-GST, they attracted concessional excise duty of 6% and 5% value added tax (VAT). The total tax incidence on sanitary napkins was 13.68% after considering cesses. Therefore, 12% GST rate had been provided for sanitary napkin," it said.

Raw material used for manufacture of sanitary napkins attract GST of 12% and 18%. This means that the manufacturers pay more GST than they collect from customers. So the difference qualifies for a refund.

“Though, within the existing GST law such accumulated input tax credit will be refunded, it will have associated financial costs (interest burden) and administrative cost, putting them at a disadvantage vis-a-vis imports, which will also attract 12% integrated GST on their imports, with no additional financial costs on account of fund blockage and associated administrative cost of refunds," the statement said.

If the GST rate on sanitary napkins was reduced to 5%, it will further accentuate the tax inversion and result in even higher accumulated input tax credit (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-a-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-a-vis imports, which will be zero rated," it added.

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