Activists across India were outraged by the goods and services tax on sanitary napkins. Photo: iStock

The Goods and Services Tax Council of India recently announced a complete reduction of the tax rate for sanitary napkin, that is, from 12% to zero. While the move was welcomed across the country, some are critical as to what it means.

Earlier, the good and services tax (GST) on sanitary napkins was reduced from 18% to 12%, which led to a huge uproar, after which a campaign was initiated to exempt it entirely from the tax.

Menstrual-health management has been an issue in India for a long time. According to the National Family Health Survey 2015-16, 62% of women aged between 15 and 24 years still use cloth, and it is also linked to girls dropping out of school.

Several campaigns were initiated in the last few years, and Member of Parliament (MP) Sushmita Dev also filed a petition in 2017 to have sanitary napkins tax-free, as they are a necessity. The petition received  more than 200,000 signatures.

SheSays India, a Mumbai-based non-profit that works to promote gender equality and women’s rights, has also campaigned heavily for the same, with several celebrities coming out to show their support. Founder and social activist Trisha Shetty also filed a public-interest litigation, which is still pending with the Supreme Court.

But now that sanitary napkins are tax-free, the question arises whether this move will increase availability those who otherwise couldn’t afford them.

Increase in imports?

With the GST, a manufacturer has to pay tax at every level of production, from acquiring raw materials to processing. This is called input tax. Now, if the final tax of 12% is removed, the manufacturer still has to bear the input tax. This will then be added to the final cost of the product. Although there won’t be an increase in the price of the sanitary pads, it will either stay at its current level or just make an insignificant drop.

However, this will give an edge to foreign manufacturers over domestic manufacturers, as the former will not be subject to input tax and now will not have to pay GST either.

Kamal Johri, chief executive of Nobel Hygiene, told Asia Times, “Exempting sanitary napkins would lead to [an] increase in imports, since foreign manufacturers won’t have to pay for input tax.” He added that there wouldn’t be any meaningful change in the price of the pads.

Most important, he said, “People are of the view that cotton is used to make pads on which there is no GST. But, in fact, the pads are made out of wood pulp on which GST is levied.”

Market analyst Deepak Shenoy put up an interesting post on his blog Capitalmind pointing out the mess in the GST on sanitary napkins. He argued that importing napkins into India might prove a lot cheaper than manufacturing them domestically. The GST has such a complicated structure, he pointed out, that it will force manufacturers either to reduce their profits drastically or start importing to maintain their current margins. Clearly, this is bad news for Prime Minister Narendra Modi’s ambitious “Make in India” project.

In the past, the ruling Bharatiya Janata Party has been against this exemption and also released a press statement justifying the same. Former finance minister Arun Jaitley said, “Before GST, sanitary napkins were effectively taxed at more than 13%, and they had been brought down to 12% under GST. If you did away with that 12% and brought that down, you probably won’t have any Indian manufacturer left, it will be only the Chinese products which will be sold in the Indian market.”

While Jaitley was against it, the interim finance minister, Piyush Goel, gave it a heads up, as well as a tax reduction on a number of other items such as washing machines, vacuum cleaners, and televisions to reach out to the middle class ahead of the general elections due next year.

Johri said, “The government knows everything and are intelligent enough to understand that this is not a good move. But just because of people’s pressure they went ahead.”

He suggested that sanitary napkins should come under the zero tax slab so that at least the domestic manufacturers can avail the input tax.

However, it remains unclear how the changes will affect the price of sanitary napkins on Friday.