GST rollout: Government defends tax on sanitary pads and disability aids
The Goods and Services Tax (GST) on sanitary pads and disability aids has become a point of contention with political parties, activists and citizens accusing the government of neglecting the needs of women and the disabled.
However, it emerges that the government may have had reason to place the first in the 12% tax category and the second in the 5-18% tax slab.
Government officials, while appreciating the sentiment behind the calls for a lower tax rate on both, say their decision was driven by a desire to protect local manufacturers (especially given this government’s focus on promoting local manufacturing), avoid an inverted tax structure (where there is a huge disparity between taxes on intermediate goods and those on the finished products), and keep the new tax rate at the same level or lower than the old one.
The case of sanitary napkins has become particularly contentious.
An official in the federal indirect tax body, the GST Council, said on condition of anonymity that the issue was discussed in detail before finalizing a tax of 12% on the product.
“A 12% GST rate is at par with its earlier tax burden including central and state taxes (or a bit lower depending on the state where it is purchased),” this person said. “Secondly, some of the raw materials used such as polymers attract a higher 18% rate which makes it hard to reduce the tax rate on the finished item without adding to the cost of producers.” While companies can claim credit for tax paid on intermediate goods, a huge differential between the tax rates on intermediate goods or inputs and that on the finished product would mean that they end up with tax credits that they can’t use.
Under GST, a company can claim a refund on unused tax credits, but this could take time.
B. Pramod Nair, partner and director, Wager Hygiene, a maker of health and personal care products including sanitary napkins, confirmed that most of the company’s raw materials are taxed at 18%.
The rural market for sanitary pads is largely served by low-cost products made by non-governmental organizations, self-help groups, or small start-ups. For instance, Saathi, one such start-up, makes sanitary pads from banana fibre. Goonj, a Delhi-based NGO, makes them from waste cloth. Many of these entities fall under the Rs 20 lakh threshold (in terms of revenue) over which GST is levied.
In the absence of GST, given the taxes on inputs and intermediate products, locally-made sanitary pads could lose the edge to Chinese imports, government officials said. Imports account for a fourth of the Indian sanitary market, according to Anil Talreja, a partner with Deloitte Haskins and Sells. Some of the better known imported Chinese brands are Stay Dry and Suki.
The case of disability aids is similar. The finance ministry said in a statement on Tuesday that many of the inputs used in the manufacture of these disability aids attract 18% tax. In addition, the ministry said, 22 assistive devices and rehabilitation aids for physically challenged persons would attract a concessional 5% GST rate. The list includes Braille typewriters, wheel chairs, walking frames, artificial limbs and hearing aids.
The statement rejected Congress vice president Rahul Gandhi’s accusation that the Narendra Modi administration is “insensitive” in imposing “disability tax” of 5-18% on wheelchairs and Braille typewriters.
It added that exempting the products from GST would provide an unfair advantage to imports because the locally made products would still bear the cost of input taxes, making them uncompetitive.