Shares of domestic tobacco goods makers such as VST Industries Ltd, Godfrey Phillips India Ltd and ITC Ltd declined by up to 6 per cent on the NSE on February 20. The stocks declined following reports which claimed that the Goods and Services Tax (GST) Council is likely to hike the GST imposed on cigarettes and other tobacco products.
A report by the Economic Times claimed that the GST Council might raise the GST on tobacco products after it stops levying a compensation cess on tobacco and tobacco-based goods. Presently, a GST of 28 per cent is levied on cigarettes and other tobacco-based goods. When cess and other levies are added the total indirect tax increases to 53 per cent.
An increase in GST on tobacco products can lead to a rise in the retail price of tobacco-based goods such as cigarettes, which in turn can potentially affect their sales. Following the report, VST Industries shares fell by 4.12 per cent to hit an intraday low of Rs 287.1 apiece on the NSE. Shares of Godfrey Phillips fell 6.28 per cent to hit an intraday low at Rs 6,147 apiece and ITC shares slipped 2.5 per cent to trade at an intraday low of Rs 396.2 apiece.
The report also said that the council has suggested that the GST should be raised to the highest permissible 40 per cent and additional excise duty should also be added to it. The Council is mulling the increase, to maintain the amount of tax revenue earned from these products even after the levying of the compensation cess ends. Notably, the compensation cess is scheduled to end on March 31, 2026. The report cited official sources which claimed that the government does not wish to replace the compensation cess with another cess.
A ministerial panel under the GST Council, tasked with reviewing the future of the compensation cess beyond 2026, is expected to deliberate on these options before submitting its report. The final decision will rest with the GST Council.
The government categorises tobacco-based products as ‘sin goods,’ and are taxed at 53 per cent, which is lower than the 75 per cent rate recommended by the World Health Organization (WHO).
At the time of writing this story shares of ITC Ltd traded at Rs 400.75 down by 1.39 per cent, VST Industries shares traded at Rs 288.5 apiece, down by 3.71 per cent and Godfrey Phillips shares traded at Rs 6,229.95 apiece down by 5.02 per cent.
