Value added tax (VAT) – in some countries known as goods and services tax (GST)[i] – is one of the most important revenue sources for the 21st-century tax and welfare state. This holds true for OECD Member Countries as well as EU Member States, and more so for low-income countries.
A major reason why VAT has gained such broad popularity is its unparalleled potential to raise revenues efficiently so that it distorts economic decision-making less than other taxes. Efficiency gains increase the more a real-world VAT aligns with the ideal of a VAT characterised by a broad tax base and one standard tax rate. Such an “ideal” VAT avoids exemptions from its scope as well as other forms of preferential tax treatment for specific purchases, instead of treating various supplies of goods and services in a uniform manner.
However, a broad-based, standard-rated VAT, viewed in isolation, tends to place a relatively higher financial burden on poorer households, who have less income and savings available and therefore need to use a larger share of their income (and potential savings) for consumption compared to wealthier households. Considering that women are over-represented in the lower income and wealth groups, and responsible for an above-average share of purchases of basic goods and services, this issue moreover incorporates a gender dimension.
Against this background, eliminating or reducing VAT on goods and services deemed essential – for example, food, medicine, and public transport – may appear to be an effective way to achieve social policy objectives. Because VAT is levied as a fixed percentage of the purchase price, it increases the overall cost of consumption for households. This argument embodies compelling logic and intuitive appeal, rendering VAT measures politically attractive. A glance at VAT legislation across the globe reveals that in fact many countries have chosen to provide tax concessions on deemed necessities, including exemptions and reduced tax rates.
Upon closer look, however, the case for using VAT as a tool to promote social equity is far less straightforward. Notably, while easy to implement, VAT concessions represent a blanket approach, providing relief indiscriminately across all income and wealth groups, without being able to ensure that the greatest benefit arrives at those who need it the most. The limitations of consumption taxes in contributing to social fairness are illustrated in the following based on the example of menstrual poverty.
Period Poverty and VAT
About 10% of the European Union’s (EU’s) menstruating population face what has been termed “period poverty” or “menstrual poverty” – that is, insufficient access to menstrual products and facilities such as clean water, safely managed toilets, and disposal units. Beyond challenges rooted in infrastructural and educational scarcity as well as social and cultural beliefs and norms, menstruation puts a noticeable economic strain on those concerned. These costs add to current cost-of-living pressures experienced in the EU and beyond, not least due to various crises and wars with a global impact.
From different options available to alleviate the menstruation-related burden, cutting consumption taxes such as the VAT on period products ranks among those most frequently cited, for the reasons outlined above. Campaigns against the “pink tax” or “tampon tax” have gained momentum across the globe, with numerous jurisdictions having acted through tax policies.
Within the EU, possibilities to take gender-oriented action through VAT measures have significantly been extended through the reform of the Union’s common rate system in 2022. Importantly, the amended legal framework has enabled Member States to apply a zero, super-reduced (below 5%), or reduced rate (> 5% but below 15%) instead of the standard rate (at least 15%) to “products used for female sanitary protection, and absorbent hygiene products”.
Several EU Member States have made use of the opportunities. These include Austria, which introduced a reduced rate of 10% for period products in 2021 before switching to an exemption with input VAT deduction (effectively a 0% rate) as of 1 July 2025. The continuing interest in effecting gender fairness policies through the VAT has been further exemplified by a recent hearing at the European Parliament on “The role of VAT and data bias in combatting period poverty”.
The Deceptive Appeal of Reducing or Abolishing VAT on Period Products
The importance of tackling poverty, including period poverty, is broadly undisputed. The crucial question is rather: Is VAT the best-suited instrument for achieving this objective?
In order to answer this question, it makes sense to first call to mind how measures in VAT are intended to achieve non-tax objectives more generally. The idea is to influence product prices by augmenting or lowering taxes on relevant transactions. Such policies assume that changes would be fully passed through to consumers, so that prices would increase or decrease in direct proportion to the increase or reduction in VAT.
While this assumption has a theoretical appeal and logic, empirical evidence has illustrated that real-life approaches produce mixed results. Exemptions and rate reductions are often not passed on in full, if at all, to the final consumer. This may be particularly the case when policies concern goods or services with highly inelastic demand such as menstrual products that consumers cannot forgo regardless of price developments – which might give retailers an incentive to pocket parts of or the entire price difference. Insofar as the economic advantage stemming from tax decreases is passed on imperfectly, such policies fail to meaningfully attain their purpose.
Studies on recent “tampon tax” reforms in fact draw an ambiguous picture. While a permanent rate reduction for sanitary pads and tampons in Germany was apparently fully passed on to consumers, sellers correspondingly increased prices for panty liners – goods that are often complementarily used – and thereby somewhat levelled out potential benefits. Similarly, a recent evaluation by the Austrian Chamber of Labour has revealed that reactions to the effective rate reduction of 10% in Austria in 2025 have varied across retailers and products, and represented the whole range from full to zero pass-through.
Even assuming full pass-through, the pursuit of reducing period poverty through value added taxation raises four additional issues from an equity perspective:
- Any VAT cut can, at the maximum, reduce the price of products in the amount of the tax calculated at the standard rate, currently ranging between 17% and 27% in the EU. A lowering of the gross price to this extent might not be enough to make period products affordable for those at the very bottom end of the income and wealth distribution. Hence, those most in need of support, such as people without housing, refugees, and other marginalised groups.
- Similarly, any reduction or abolition of VAT disproportionately benefits the well-to-do, as they tend to consume more in absolute terms. In the specific case of period products, it can be expected that menstruating persons from higher income and wealth groups are more likely to buy more expensive goods, including branded products. As VAT represents a fixed percentage of the net purchase price, any relief from the tax burden would therefore, and somewhat ironically, be more valuable for those spending more money on menstrual products in absolute figures.
- Relatedly, VAT cuts are blunt instruments that subsidise consumption throughout the entire income and wealth range. In the light of significant budgetary constraints in many countries worldwide – including Austria – in the current crisis environment, it is questionable whether relief should indeed be provided to every menstruating person regardless of their ability to pay and thus their ability to contribute to financing public expenditures.
- Finally, as VAT measures can only affect prices of period products, they naturally fall short of addressing issues of period poverty that arise from a lack or insufficiency of existing facilities, information, and education. These factors may play a particularly crucial role for specific societal groups, for example unhoused women and girls.
These concerns about fairness are accompanied by other drawbacks, including higher administrative and compliance costs, increased litigation risks and potential for abusive arrangements permeating any deviation from a broad-based, standard-rated VAT treatment.
Alternative Means to Increase Access and Affordability
Due to the rather poor performance of social policies levied through the VAT in terms of effectiveness and efficiency, the general advice is to give preference to alternative measures. What other policies could be used to effectively address period poverty, ensure the supply of period products, and improve access to the necessary facilities for those in need?
The traditional recommendation is to replace reduced rates and exemptions aimed at social objectives with direct cash transfers or equivalent measures, such as vouchers. These are more effective than consumption taxes in redistributing resources and thereby tackling inequality and poverty. This advantage holds even when cash benefits are universal and therefore untargeted.
In fact, a universal approach might be favoured – or might even represent the only viable option – in countries where administrative capacity is limited, notably low- and middle-income countries. In addition, universal benefits may be preferred to gain broad political support, as well as to avoid stigmatisation. That said, the example of Fiji illustrates what a targeted approach might look like in an upper-middle-income country: coupling voucher-based relief for schoolgirls with agreements between the government and authorised vendors.
Targeted or not, cash transfers and voucher-based schemes require careful design. Policymakers need to determine how much support – expressed in cash or number of products – is adequate. Any sound decision requires relevant and reliable data on the actual costs and needs. Arguably, the fairest approach would account for individual circumstances, for example, conditions such as endometriosis that increase product needs. However, this would make any relief mechanism utterly difficult to administer in practice.
If direct support takes the form of a concrete cash amount, lawmakers must ensure regular adjustments to keep pace with inflation. Without such adjustments – whether automatically or through ad-hoc policy action – recipients will gradually lose purchasing power over time. An alternative is the issuance of vouchers on a per-item basis, which sidesteps the inflation issue by providing consumers with a fixed number of products instead of a monetary sum. Vouchers also ensure that the support is channelled towards period products, which are the precise target of the policy measure.
Beyond substantive matters, relief design must consider how the system can be effectively operated. Most importantly, any model should ensure easy, unbureaucratic access for vulnerable and marginalised groups – including minors – to the cash transfer or voucher scheme.
An alternative or complementary approach to direct transfers in addressing period poverty is the free distribution of period products in public institutions, including schools, universities, hospitals, and administrative buildings. After an initial phase of voluntary provision, Scotland became the first country worldwide to mandate such a policy in 2021, and a few others followed suit. Noteworthy, and quite commendable, is the Scottish government’s monitoring of the effectiveness of providing free period products. Results from the 2022 baseline survey demonstrate the benefits of the Scottish way: Those familiar with the free distribution scheme reported that they were better able to continue with their day-to-day activities, worried less about their periods, and experienced a positive effect on their household finance.
Free distribution of period products may be a viable solution for many countries and municipalities as it does not rely on means-testing and is therefore easier to administer. Moreover, access barriers are particularly low under a free distribution scheme in public areas, as it does not require registration in a social welfare programme or individual access rights. As such, free distribution is particularly apt to minimise the risk of low uptake due to any internalised welfare stigma. That said, even free distribution policies incorporate challenges, as they require sustainable and reliable supply of relevant goods. Moreover, similar to universal cash benefits, they are not specifically targeted at those most in need. If the range of products provided free of charge is limited, they might also restrict consumer choice.
Crucially, period poverty is not only about affordable sanitary pads, tampons, and the like. Sufficient and accessible infrastructure, information, and education are equally critical to the success of any meaningful policy strategy. This includes easy access to safe water, lockable toilets and disposal facilities, as well as low-threshold awareness initiatives across all societal groups. While putting a strain on public budgets as other measures targeting menstrual poverty, investments in relevant infrastructure and education also require a long-term, sustainable, and multi-party commitment to not only build but also maintain efforts over time, as well as cross-departmental collaboration – notably, between the public authorities responsible for finance, building, and education.
Promoting Social Equity Requires Careful Policy Design
VAT cuts seem to provide a simple, politically alluring, easy-to-implement solution to achieve social equity. However, real-world experience shows that consumption tax policies are often blunt instruments, unable to effectively target those most in need. In addition, social fairness issues, such as period poverty, are complex in nature, having their roots in financial strains, lack of infrastructure and education, and social and cultural norms and beliefs. Alternative policies like cash transfers, vouchers, free distribution of products, and investments in infrastructure, information, and education appear overall more promising but are not free of challenges either.
The key lesson is that any policy to address social equity, including period poverty, must be carefully designed, based on robust and reliable data and backed by ex-ante and ex-post evaluations. Given the need for trade-offs, it appears sensible to combine a range of policy measures tailored to the preferences and needs of individual communities. Such policy action grounded in input and feedback from those affected would arguably best align with the Menstrual Hygiene Day’s motto – “Together for a period-friendly world”.
[i] For simplicity, this blogpost refers only to VAT, though the findings also apply to similar taxes regardless of name.