Notebook GST Exemption Squeezes Indian MSMEs Amid Cheap ASEAN Imports

Summary: More than 10,000 micro, small and medium enterprises across India are involved in notebook manufacturing, according to the All India Notebook Manufacturers Association (AINMA), which describes the sector as facing an “existential crisis.” The association alleges that low-cost finished notebooks from ASEAN countries, particularly Indonesia, are flooding the Indian market because of the combined effect of trade agreements and domestic tax exemptions. Under the ASEAN Free Trade Agreement, finished paper products including exercise books, graph books and laboratory notebooks can enter India from Indonesia, Thailand and Malaysia at zero Basic Customs Duty, while the September 2025 reduction of GST on exercise books and notebooks from 12 percent to nil also reduced IGST on imported notebooks to zero. Domestic manufacturers, however, continue to pay 18 percent GST on raw materials such as paper, coated paperboard, specialised adhesives, stitching wire, packaging cartons and printing inks, but cannot claim Input Tax Credit because the finished notebooks are tax-exempt. AINMA says this creates an inverted duty structure, increasing domestic production costs while giving imported notebooks a price advantage. The association also states that paper manufacturers raised ex-mill paper prices by roughly 12-14 percent after the GST reduction, limiting the benefit to consumers. AINMA has proposed moving notebooks to a uniform 5 percent GST slab to restore ITC, while industry experts have suggested zero-rating, a Minimum Import Price for ASEAN imports and an anti-profiteering inquiry. The government has not confirmed whether or when it will act.

Notebook GST Exemption Backfires: 10,000+ Indian MSMEs Squeezed by Cheap ASEAN Imports

India’s small and medium notebook manufacturers say the very tax and trade rules meant to help them are now working against them. In a letter to the commerce ministry, the All India Notebook Manufacturers Association (AINMA) has described the sector as facing an “existential crisis.”

What’s happening

According to AINMA, more than 10,000 micro, small and medium enterprises (MSMEs) across India are involved in notebook manufacturing. The association alleges that the domestic market is being flooded with low-cost, finished notebooks from ASEAN countries — particularly Indonesia — made possible by a combination of trade agreements and domestic tax exemptions that together create what it calls a “tax-free corridor” for imports.

How the tax structure created a contradiction

The root of the problem lies in two separate policies colliding.

First, under the ASEAN Free Trade Agreement (FTA), finished paper products — including exercise books, graph books, and laboratory notebooks — can enter India from Indonesia, Thailand, and Malaysia at zero percent Basic Customs Duty (BCD).

Second, in September 2025, the government cut the domestic GST rate on exercise books and notebooks from 12 percent to nil. This automatically brought the IGST on imported notebooks down to zero as well.

The result: foreign manufacturers can sell finished goods in India without paying any tax on them here. But for domestic manufacturers, the picture is reversed. According to AINMA, the raw materials used to make notebooks — paper, coated paperboard, specialised adhesives, stitching wire, packaging cartons, and printing inks — still attract the standard 18 percent GST rate. Because the finished notebook itself is now tax-exempt, manufacturers cannot claim Input Tax Credit (ITC) to recover that 18 percent.

Key terms explained simply

Input Tax Credit (ITC)

Normally, when a company pays GST on raw materials, it can offset that amount against the tax due on its finished product. But if the finished product is fully tax-exempt, no credit is available — which is exactly the situation notebook manufacturers are in.

Basic Customs Duty (BCD)

A duty charged on goods entering India at the border. Under free trade agreements, this is often reduced to zero for many products.

Zero-rating

Different from a GST exemption. Under zero-rating, the tax rate on the product is still zero, but the product remains inside the tax system — meaning manufacturers can claim back tax paid on inputs. An exemption blocks input credit; zero-rating allows it. That’s the key distinction.

Minimum Import Price (MIP)

A government-set floor price for a specific imported good, intended to prevent abnormally cheap imports from undercutting domestic industry.

Timeline

• September 2025: The government cuts GST on exercise books and notebooks from 12 percent to nil.
• Shortly after: According to AINMA, paper manufacturers raise ex-mill paper prices by roughly 12-14 percent.
• September 8: AINMA writes to the commerce ministry outlining the severity of the situation and seeking policy intervention.

(Note: the available information does not specify the year of the letter, though it appears to follow the GST rate change — not separately confirmed in the source.)

The real impact on domestic manufacturers

In practical terms, the impact cuts both ways. Imported notebooks enter the market carrying no domestic tax burden, while Indian manufacturers are stuck absorbing the 18 percent GST paid on raw materials, with no way to recover it. This situation is commonly referred to as an “inverted duty structure” — where raw materials are taxed more heavily than the finished product, running counter to how GST is normally supposed to work.

The direct consequence is that domestic production costs stay elevated while imported products enjoy a built-in price advantage. This imbalance hits smaller manufacturers hardest, since MSMEs typically have far less financial cushion to absorb such costs compared to larger players.

No relief for consumers either

One might assume that scrapping GST on notebooks would have made them cheaper for buyers — especially students and parents. But according to AINMA, that isn’t what happened. Almost immediately after the nil-GST announcement, paper manufacturers raised their ex-mill prices by 12-14 percent. As a result, the benefit of the tax cut appears to have been absorbed somewhere else in the supply chain rather than passed on to consumers — though the exact mechanism behind this isn’t detailed in the available information.

What analysts and industry are recommending

AINMA’s main proposal is to move notebooks out of the exempt category and into a uniform, nominal 5 percent GST slab. The reasoning: this would let manufacturers claim ITC again, reducing the tax buried in their production costs.

Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat, offers an alternative — zero-rating notebooks, which would give manufacturers a more complete mechanism to recover or refund eligible input taxes and improve overall tax neutrality.

Sivakumar Ramjee, Executive Director-Indirect Tax at Nangia Global, recommends two further steps: enforcing a Minimum Import Price (MIP) on finished notebooks coming in from ASEAN countries, and ordering an official anti-profiteering inquiry into domestic paper mills’ pricing practices, to ensure raw material suppliers aren’t artificially inflating costs.

What this could mean going forward

This case is another example of a recurring issue in India’s GST framework — the inverted duty structure — which has previously sparked debate in sectors like textiles and footwear. If the government acts on AINMA’s suggestion, the direct effect would likely be lower production costs for small notebook manufacturers, helping them compete better against imports. However, there’s no confirmation in the available information on whether or when the government will act, so the outcome depends on a policy decision that hasn’t yet been made.

FAQ

1. Why was GST on notebooks cut to zero?

In September 2025, the government reduced GST on exercise books and notebooks from 12 percent to nil. The full policy rationale isn’t detailed in the available information, though such moves are typically aimed at lowering consumer costs.

2. Why didn’t notebooks get cheaper despite the GST exemption?

According to AINMA, paper manufacturers raised ex-mill paper prices by roughly 12-14 percent almost immediately after the nil-GST announcement, meaning the tax benefit largely didn’t reach consumers.

3. Why are ASEAN imports hurting Indian notebook manufacturers?

Under the ASEAN FTA, finished notebooks from Indonesia, Thailand, and Malaysia enter India at zero customs duty, while domestic manufacturers pay 18 percent GST on raw materials with no way to claim it back.

4. What is AINMA asking the government to do?

AINMA wants notebooks moved out of the GST-exempt category into a uniform 5 percent slab, so manufacturers can claim Input Tax Credit.

5. What’s the difference between zero-rating and GST exemption?

Under an exemption, the product sits outside the tax system entirely and no input credit is available. Under zero-rating, the tax rate is zero but the product stays within the system, allowing manufacturers to claim back tax paid on inputs.