Jaitley explained that one of the key components of GST is the Input Tax Credit system. It simply states that the total tax, a manufacturer has to pay to the government for a product that they sell.
Finance Minister Arun Jaitley has been criticised for including sanitary pads under GST. Today, FM revealed why this product attracts GST. Answering all questions, the minister said that the debate on the issue is ill-informed. FM Jaitley explained that 12 per cent Goods and Services Tax (GST) is necessary as it safeguards Indian manufacturers from foreign ones. While speaking at the HTLS, Jaitley was questioned by a member of the audience on why such a basic sanitation product could fall under such high tax bracket.
Jaitley explained that one of the key components of GST is the Input Tax Credit system. It simply states that the total tax, a manufacturer has to pay to the government over a product that they sell, and it is the tax rate on the product set by the government minus the tax that has already been paid on the raw materials for that product. This amount that the manufacturer gets to keep with themselves is called the Input Tax Credit.
In the case of sanitary pads, Jaitley said that the tax mandated is 12 per cent of the cost which is set by the manufacturer. He further explained that when the same manufacturer buys raw materials for sanitary pads, he already pays a GST on each of them. Jaitley highlighted that some of the raw materials actually fall in the 18 per cent bracket. The tax that he hence pays to the government, is the final tax on his price minus the taxes he has paid while buying the raw materials. This, in turn, reduces manufacturing costs for him. This is how the input credit system protects the manufacturer.
“Prior to the implementation of GST, there were several hidden taxes which led to sanitary pads to have an effective tax rate of 13 per cent over the price. So that is already reduced to 12 per cent by bringing it under the GST,” said Arun Jaitley. He further explained, “Add to it the input tax credit to the manufacturer, and it then gets reduced in the range of 3-4 per cent effectively that has to be paid to the government, significantly cutting down manufacturing cost for the manufacturer. Since the manufacturing costs are cut, the benefit can even be passed on to the customer in the form of lower base price.”
Jaitley also pointed out that this reform protects Indian manufacturers from Chinese counterpart. “Apart from the input tax credit boosting the indigenous manufacturers, it also protects them from Chinese imports. This is because the Chinese imports have a lower base price than Indian products. Removing the GST completely from the sanitary pads would result in loss of input credit to Indian manufacturers and would drive up manufacturing costs even further. Thus, the GST keeps Indian goods competitive,” said Arun Jaitley.
I hope this explaination by FM @arunjaitley will help likes of .@fayedsouza as to why Sanitary Napkins attracts GST and is in turn safeguarding Indian manufacturers specially at village levels against Chinese imports. If not, then God bless you !! pic.twitter.com/r0Vn3GrWnB
— Yo Yo Funny Singh (@moronhumor) November 30, 2017
Jaitley also spoke about several other measures that the Modi government recently took to boost the Indian economy.