The Constitution of India was recently amended to introduce the ‘Goods and Services Tax’ (GST). The GST subsumes almost all the existing indirect taxes in India (such as Excise Duty and Service Tax, levied and collected by the Federal Government, and Sales and Entry Tax, levied and collected by the State Government) and instead institutes a unified, single value added tax system for the entire nation. This was a landmark Constitution Amendment, since it eliminates the complete separation of powers and autonomy of the Union and the States in matters of taxation law. Now, indirect taxes are jointly administered by the Union and States, under the direction of the GST Council, a body comprising of Finance Ministers of the both the Centre and the States.
The new GST regime came into force on 1st July 2017. The GST Council decided to set seven different tax rates – Nil, 0.25, 3, 5, 12, 18, and 28 (in percent) – that will apply to the supply goods and services as per a schedule prepared by the Council. The Council decided to include sanitary napkins, sanitary pads and tampons in the 12% bracket. This led to protests, campaigns and petitions to reduce the rate of tax or exempt them entirely. The Council, despite representations, chose to stick to its original decision.
Repeated questioning led to the Union Finance Ministry issuing a note of justification. In its press release, the Finance Ministry justifies the 12% tax rate on two grounds. The first ground is that the pre-GST tax incidence was higher (about 13.68%). The second ground is based on the purported fact that raw materials used to produce sanitary napkins attract a tax rate of 18% or 12%. As a result, the Finance Ministry argues, domestic producers will have to face the financial and administrative costs associated with seeking refunds of tax credits earned in this “inverted” GST structure: whereas importers will face no such burdens (while paying the same 12% tax). This would worsen if the rate were to be reduced to 5%. If the rate were to be reduced to nil, then no input tax credits would be available at all (products taxed at ‘nil’ are treated as tax exempt, barring the possibility of claiming tax credits). The bottom line, as per the Finance Ministry, is that domestic producers would be put at a disadvantage compared to importers, if tax rates were to be reduced.
The economics of the justification can certainly be debated. The pre-GST tax incidence was lesser in states like Gujarat and Haryana, since they exempted sanitary napkins from taxes. Further, as one journalist argues, 80% of the raw materials used in the production of sanitary napkins is only taxed at 5%. Possible alternatives such as differential tax rates were not discussed (for instance, footwear costing under Rs. 500 is taxed at 5% and the rest at 18%). But beyond the argument that domestic producers must be prioritized, the press release fails to respond to constitutional concerns. Gautam Bhatia, for example, has argued that taxes on sanitary napkins constitutes sex discrimination under Article 15(1) of the Indian Constitution. Bridget Crawford, in addition, has highlighted other rights, such as the right to health, work, dignity and education, that may be affected. However, the GST Council and the respective governments may soon have to answer, since the Delhi and Bombay High Courts have issued notices in cases filed challenging the 12% tax on sanitary napkins.
Vasujith Ram is a graduate of the National University of Juridical Sciences, Calcutta, and is presently enrolled in the LLM program at Harvard Law School
