Various NGOs and women-rights groups were vocal at demanding the exemption to Goods and Services Tax for sanitary pads; which, in their view, they taxed which like a luxury item (if luxury items ever taxed at 12 percent). NGO’s didn’t put much thought into it because when the Government gave in and agreed to their demands by dropping GST rate to nil for the sanitary pads. It found the results to be counter-productive to the purpose behind this genius movement.

The Government was not quick in accepting this demand. Finance Minister Arun Jaitley and the Government itself through a press release, explained the situation frequently that GST lowered the prices of sanitary napkins since GST taxed them at 12 percent while before GST, sanitary napkins were being taxed at over 13 percent.

The Government also pointed out another concern. It conveys that the reduction of GST rate from 12 percent to nil won’t just deny the input tax credit to the domestic manufacturers, but also put them at a terrible disadvantage against zero-rated imports and since much of these are Chinese, who don’t have to pay input tax due to offshore production, these imports would dominate the market and wipe out local competition.

However, these explanations fell on deaf ears. The demands for exemption were relentless. Several campaigns like ‘LAHOO KA LAGAAN’, flooded Social Media. Eventually, the Goods and Services Tax Council in its 28th meeting agreed to it. For a brief amount of time, the NGOs and women-rights group hailed this as quite the victory and a feat that achieved through their impeccable activism.

That was so until they realized their folly

A manufacturer pays GST at each stage of production both while buying the raw materials for input and while selling the finished product. However, to avoid double taxation, the Government remits the tax on buying the input, i.e., the manufacturer pays raw materials, so long as the tax on the output.

A lower tax rate does not mean a reduction in prices for the consumers because the inherent cost of manufacturing of the product and cost of maintenance of supply chain remains same.

Raw materials for the production of sanitary pads have varying rates of GST levied on them. While it taxes plastic packing sheet and glue at 18 percent, the release paper and the wood pulp used to make it taxed at 12 percent and it tax cotton at 5 percent. Advertisements to carry a tax rate of 18 percent under GST. The costs accruing from these won’t abate, now that the finished product has exempted from GST liability.

So, while they remitted taxes on these materials earlier while they paid GST on the final product, the situation has been reversed. Now, the higher rates of taxes paid on raw materials, while they will not take tax the final product. This goes against the fundamental premise of taxation itself, but it’s not unusual for activists to defy logic against all odds.

Courtesy of enthusiastic feminists wishes the good sense may prevail, and give a further push to the ‘Swachh Bharat’ Campaign. The situation is witnessing a reverse trend. This market will crumble down against imports from China, Taiwan, South Korea, and Thailand.

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