Taxing periods in India — the old & the new way
Call up any retailer, manufacturer or distributor today — all of them will be running around trying to understand how is Goods & Services Tax (GST) going to impact their business, product pricing, margins, compliance etc.
The tax structure in India was very complex which also kept our ranking very poor in the ease of doing business. Despite being an ex-investment banker and CFA (L-1) it took me multiple discussions with my Chartered Accountant to understand how VAT, CST, Excise, Octroi, Customs, Service Tax work and what all are applicable on us as an early stage social start-up working on making quality and affordable sanitary napkins. These are just the taxes of course, I am not even starting on the licenses needed to import/export, manufacture and sell, that will be another long article for sure. GST is supposed ease some of the burden when we start understanding it.
There are two broad sets of articles floating on the sanitary napkin industry 1) GST and its impact on sanitary napkins and 2) Why sanitary napkins should be made tax free. I have been fortunate enough to have read most of these articles along with more detailed recommendations to the government by menstrual hygiene alliances, and have had discussions with political activists and social workers.
Let’s look at the first one — GST and its impact on sanitary napkins
In GST regime, menstrual hygiene products are categorized in the ‘miscellaneous’ category levying a 12% tax on sanitary napkins. Pre-GST, depending on where you lived, the tax structure varied. For a consumer, the MRP was fixed. But middlemen/women were absorbing the tax burden differently. For example, if I sold a product from outside of Mumbai to Mumbai I had to pay 5% extra as Octroi. If I were a large-scale manufacturer, I paid 12.5% excise duty. In addition to these, VAT varied from state to state (eg. Maharashtra (6%), selling in Delhi (12.5%)) or if you were selling interstate (CST of 2%). All these were included in the MRP already, which kept it high uniformly.
The advantage with GST is that now there is just one tax which is 12% for the category (for disposable products like sanitary napkins/tampons). How it impacts every business will be very different. You may not see any significant price change in commercial sanitary napkin products in the next 1–2 months, as it takes time to change all printing/communication/ positioning etc. The MNCs had optimized their site of production in Excise free zones, set-up their entire distribution channel to be the most tax efficient as they could. GST will require some restructuring, but they will find their way to keep tax costs in control, in some time.
For small scale manufacturers, local innovators & start-ups, we may get some input credits of Excise and service tax that we paid to our vendors but could not net off against our VAT. This is a great news! But being in Maharashtra our VAT was 6% which now has gone to 12% which is a disadvantage. Also, the overall cost of compliance has significantly gone up given the number of times fillings are required for GST. How it will affect our overall margins is yet to be seen — but it will not be significant.
Let’s come to the second discussion — Why sanitary napkins should be made tax free
This was a pertinent question even before GST and now too.
So, here are some statistics — currently, 336 million Indian girls and women are menstruating. As per research from 2015, only 16% of women in India use sanitary napkins. 70% of women in India suffer from reproductive tract infections.
While countries like Kenya and our-forward-looking-favourite Canada have tampons/pads tax free, there are multiple campaigns, just like India, happening in the US, UK and Australia.
Here is the rationale that people have against making sanitary napkins tax free:
1. Loss to the Government income — While in a lot of countries, feminine care category is a billion-dollar industry ($10.7 billion industry in China), in India, the market size of fem care is only $450 million (INR 3016 crores), given the low category penetration in semi-urban and rural India. Using market share and revenue data for key players in the sanitary napkin industry and a modest increase in market size, the estimated annual loss to the exchequer at 12% tax rate would be approximately INR 320 crores. This is approximately 0.04% of the total indirect tax collection recorded for FY 2016–17 and merely 0.02% of the total tax collection.
2. Who really benefits from this? — Since large multinational companies currently have more than 80% of the market share, the argument is that biggest gainers from making sanitary napkins tax free will be these large companies and they may or may not pass the pricing advantage to the users. If we keep aside the popular dislike of the big players, 20% of the manufacturers include local manufacturers, social enterprises and NGOs who are striving very hard to make sanitary napkins more affordable. If pads were more affordable, there could be many more women who could start using pads regularly.
And, here is why pads and tampons should be tax free -
1. Health Reasons, not luxury: Contraceptives are tax free, given the impact on sexual health on family planning. Sanitary napkins play a very important role in hygienic and safe menstruation for women, so why this unfair treatment to menstruating women?
2. Socio-economic reasons/ Beti Bachao: 23% of school girls drop out school when they start menstruating. All the work on Swacch Bharat Mission and Beti Bachao Beti Padhao remains incomplete without addressing this basic biological process that is affecting a girl/women’s life. Affordability plays a major role in poor adoption of sanitary napkins apart from lack of education and access.
3. Cottage Industries/ Make in India: Products like Sindoor and Beedis (compared to heavily taxed cigarettes) are tax free as they support local cottage industries and create large number of jobs. It is interesting to note that several affordable pad manufacturers like Saral Designs, makers of Active Ultra Sanitary Napkins, Aakar Innovations, Saathi Pads, Arunachalam Muruganatham and others are working on a localized production model creating several jobs and increasing last mile access.
4. Hear the democratic voices: A lot of organizations and celebrities are coming together to suggest recommendations on first categorizing menstrual hygiene products separately and making them tax free like #LahukaLagaan, #ThePadEffect, #TaxfreeSanitaryNapkins and many such campaigns on social media. There are mainstream movies being made on menstruation like #PadMan, #Phullu to raise awareness. It is important to realize that this is the long overdue menstrual hygiene revolution that the country needed. It is the best time and the only time when we all are working together and can really make our voices heard.
Concur with the thoughts or have contradicting views? Do share your comments with me. I will try my best to answer them at the earliest.
Also, feel free to reach out to me at firstname.lastname@example.org or checkout our Active Ultra pads if you feel passionate about women’s health too and are a menstrual hygiene champion!
 Source: World Bank’s Doing Business rankings for 2016–17
 Source: Motilal Oswal Equity Research 2016
 Source: AC Neilson Report, 2011
 Euromonitor International, Women & Global Hygiene, January 2016
 Source: Motilal Oswal Equity Research 2016
 Quoted from: Recommendations from MHM Alliance 2017
 Euromonitor International, Sanitary Protection in India, March 2016
 Source: AC Neilson Report, 2011