New Delhi, July 11 (KNN) Reacting to various media reports over GST rate on Sanitary napkins, Government has clarified that the tax incidence on this item before and after GST is the same or less.

Government said reducing the GST rate on sanitary napkins to Nil will 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 dis-advantage vis-à-vis imports, which will be zero rated.

The Ministry of Finance in a press release said Sanitary napkins are classifiable under heading 9619.

In pre-GST, they attracted concessional excise duty of 6% and 5% VAT and, the pre-GST estimated total tax incidence on sanitary napkins was 13.68%.  Therefore, 12% GST rate had been provided for sanitary napkin.

Major raw materials for manufacture of sanitary napkins and applicable GST rates on them are as under:

a)             18% GST rate

          o    Super Absorbent Polymer

          o    Poly Ethylene Film

          o    Glue

          o    LLDPE– Packing Cover

b)             12% GST rate

          o    Thermo Bonded Non-woven

          o    Release Paper

          o    Wood Pulp

As raw materials for manufacture of sanitary napkins attract GST of 18% of 12%, even with 12% GST on sanitary napkins, there in an inversion in the GST structure, the Ministry said.

Though, within the existing GST law such accumulated ITC will be refunded, it will have associated financial costs [interest burden] and administrative cost, putting them at a dis-advantage 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 dis-advantage vis-à-vis imports, clarified the Ministry.

 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 dis-advantage vis-à-vis imports, which will be zero rated.