Decoding GST on sanitary pads

WaterAid/Poulomi Basu


Why does GST matter?

After a year-long zealous campaign on the Goods and Services Tax (GST) for sanitary pads by Members of Parliament, activists, students and the general public, the Government on India announced on 21 July 2018 that sanitary pads will be exempted from GST, a decision that was thought to benefit the thousands of Indian girls and women who use and want to use sanitary pads. The basic premise for the zero tax movement was that sanitary pads are an essential and not a luxury item for women.  But will tax exemption really make sanitary pads a more affordable necessary item?

Menstruation, a normal bodily function, has implications for the health and wellbeing of adolescent girls and women because of the many barriers they face in managing their monthly periods in a safe and hygienic manner. A critical aspect of menstruation management is the use of safe or hygienic materials to capture or absorb menstrual blood, including sanitary pads or clean cloth. The latest National Family and Health Survey 4 found that 58% of young Indian women (15-24 years) use sanitary pads, a significant increase from the 12% of women who were using pads in 2010 (as reported by the Plan and AC Nielsen study). This is, no doubt, a consequence of greater attention to menstrual hygiene management over the past few years in India. Large corporates have expanded their product range and market reach. Several government and non-government programs have promoted menstrual hygiene through health awareness programs and free or subsidized distribution of sanitary pads. Small-scale sanitary pad manufacturing units have been supported to make low-cost pads more easily available, while generating income for women. And, entrepreneurs, driven by quality, health or environmental concerns over regular sanitary pads, have innovated with a range of menstrual products introducing reusable cloth pads, menstrual cups, and “eco-friendly” or compostable sanitary pads. GST will affect this range of players in India in different ways, having implications for girls and women, particularly on their ability to choose and pay for what they want to use.

Will GST exemption really make sanitary pads cheaper?

Under GST, tax must be paid at every stage of the value chain, from the purchase/procurement of raw materials to manufacture, trade and sale of finished products. Exemption from GST on sanitary pads applies to the finished product, not on the raw materials. This has consequences for manufacturers, the complexities of which are yet to be fully discovered. Previously, to safeguard manufacturers from having to pay tax when procuring raw materials (input tax) and when selling their goods (output tax), the government refunds input tax on the condition that output tax will be paid. With the final product exempt from GST, manufacturers will likely no longer be able to claim input tax credit.

A year ago on 10 July 2017, the Government of India issued a press release in which the GST on key raw materials used in sanitary pads was articulated, and the argument made that tax exemption on the finished product will be detrimental in terms of input tax credit. For example, many commercially available popular products use super absorbent polymers (that make pads very thin yet highly absorbent) and glue, two raw materials that attract 18% GST. At 12% GST on sanitary pads, manufacturers could claim input tax credit on the 12% or 18% GST paid on raw materials and any other tax paid on transportation and logistics costs. With tax exemption, manufacturers cannot claim input tax credit on these raw materials. As a result, while the tax on the final product is removed, the tax on inputs that was otherwise reimbursed becomes a cost to be borne. But prices of consumer goods such as shampoos, soaps and even sanitary pads tend to be sticky or resistant to change. If manufacturers want to continue to make the same profit per unit, they may be able to only marginally reduce prices, depending on the nature of their inputs.

Lastly, tax exemption on sanitary pads manufactured in India will likely place them at a disadvantage compared to imported sanitary pads that will likely have zero tax as traded finished products, an argument made in the Government’s press release last year as well. The issue with imported goods is that often times, low price goods enter the country that may or may not adhere to any quality standards established by the Government of India, with little information on the composition of the product and the potential impact on women’s health.

Manufacturers of different types of menstrual hygiene products, for the most part, have been unpacking the implications of GST versus no GST on the pricing of their varied products. Over the past week since the announcement, several journalists and financial experts opine that tax exemption, in reality, may not confer the desired cost benefits to users. The Feminine and Infant Hygiene Association (FIHA), an industry body that represents large and medium scale industries manufacturing pads and diapers, plans to lobby with the government to make provisions for input tax credit to make menstrual hygiene products more affordable.

Will GST be to the advantage of user choice?

Menstrual health advocates believe that girls and women must be able to choose menstrual absorbents based on their needs and the contexts in which they live and experience menstruation. Menstrual hygiene management requires that girls use hygienic menstrual absorbents. While hygienic absorbents are often equated with branded sanitary pads, other products such as reusable (manufactured) cloth pads, menstrual cups, and compostable sanitary pads may also be safe to use. Entrepreneurs have developed high quality menstrual hygiene products including compostable pads (e.g., Anandi pad, Saathi pad), reusable cloth pads (e.g., Saafkins, Safe pad, EcoFemme products, Soch pads), and menstrual cups (e.g., She cup). The underlying purpose of introducing these alternative products is to provide women and girls with a choice. While the retail market for these products is often limited to urban consumers, several not-for-profit organizations have introduced alternative products to rural communities in which they work with promising results. The effect of GST on these alternative products is, however, poorly understood.

Given the growing concern related to menstrual waste and lack of infrastructure to manage it, partially compostable sanitary pads, reusable cloth pads and menstrual cups offer some sustainable alternatives. Compostable pads using imported raw materials are paying much higher tax rates on their inputs due to the lack of availability of these inputs in India. There is lack of clarity on what rates should be applied to reusable cloth pads and menstrual cups made of medical grade silicone. This ambiguity combined with GST exemption on sanitary pads will be detrimental to every woman’s right to choose by making it more difficult for manufacturers of these products to innovate for the Indian market

If our goal is to make safe, quality menstrual hygiene products available to girls and women at affordable prices, GST on menstrual hygiene products must at the very least:

  1. Clarify implications for claiming input tax credit in the context of tax exemption on finished products
  2. Recognize categories of menstrual hygiene products beyond sanitary napkins and tampons (compostable disposable sanitary napkins, reusable menstrual cups, reusable cloth pads)
  3. Clarify GST on raw materials used in different categories of menstrual products and offer a relative tax structure for these raw materials (whereby raw materials developed from natural materials are taxed lower than materials like super absorbent polymers)
  4. Ensure that both locally manufactured and imported products must mandatorily adhere to the quality criteria set by the Bureau of Indian Standards (IS 5405), in order to be eligible for the tax exemption

As activists, decision makers, and advocates of menstrual health in India, we must approach GST on sanitary pads with a more nuanced perspective on how this action makes safe, affordable products more easily available to girls and women who need them the most, while safeguarding their right to choose based on their needs and the contexts in which they live.

Also check out our video: Will GST exemption will make any impact?

Arundati Muralidharan is Manager - Policy at WaterAid India. She Tweets as @@arundati_md

Tanya Mahajan is Cofounder at Zariya. She Tweets as @@zariya_org

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