Refuting reports that levy on sanitary napkins has been raised under the Goods and Services Tax (GST) regime, the Finance Ministry on 10 July said the tax incidence on these will remain the same or lower.

"There are some remarks made by various column writers on GST rate on sanitary napkins. It may be mentioned that the tax incidence on this item before and after GST is the same or less," the ministry said here in a statement.

"In pre-GST regime, sanitary napkins attracted concessional excise duty of 6 per cent and 5 per cent VAT. The pre-GST estimated total tax incidence on sanitary napkins was 13.68 per cent. Therefore, 12 per cent GST rate had been provided for sanitary napkin," it said.

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

The main raw materials used for the manufacturing of sanitary napkins which attract 18 per cent rate are super absorbent polymer, poly ethylene film, glue, LLDPE-Packing Cover and those that attract 12 per cent tax are thermo bonded non-woven, release paper and wood pulp.

"Though within the existing GST law such accumulated Input Tax Credit (ITC) 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 per cent Integrated GST on their imports, with no additional financial costs on account of fund blockage and associated administrative cost of refunds," it said.

If the GST rate on sanitary napkins were to be reduced from 12 per cent to 5 per cent, 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 disadvantage vis-a-vis imports, the ministry argued.

However, 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 disadvantage vis-a-vis imports, which will be zero-rated, it added.

Women's rights groups and gynaecologists around the country have been protesting the 12 per cent tax on sanitary napkins, saying they are a necessity not a luxury and hence should not be taxed.