Shares of tobacco giants such as ITC Ltd, VST Industries Ltd, and Godfrey Phillips India Ltd plunged by up to 4% on 20th February, as reports suggested that the Goods and Services Tax (GST) Council might consider hiking the GST on cigarettes and other tobacco products.
The tax hike will take effect once the compensation cess is discontinued. Higher cigarette taxes may lead to lower sales as consumers cut spending or switch to cheaper alternatives, including counterfeit products.
In the Union Budget 2025, Finance Minister Nirmala Sitharaman did not change tobacco taxation. The last increase was 2% in February 2023, and a stable tax regime supports steady industry growth.
Tobacco products currently fall under the 28% GST slab, but additional levies push the total tax burden to 53%. A proposal suggests raising GST to 40% and adding extra excise duty to maintain revenue after the compensation cess ends on 31st March 2026. Officials have ruled out introducing a replacement cess.
A ministerial panel will review these proposals before submitting recommendations, but the final decision rests with the GST Council.
Classified as ‘sin goods,’ tobacco products face multiple taxes, including GST, excise duty, compensation cess, and NCCD. Despite a 53% tax rate, it remains below the WHO’s recommended 75%.
At 11:26 AM, ITC was trading 1.07% lower at Rs 402.05, Godfrey Phillips India was trading 4.55% lower at Rs 6,260.75 & VST Industries was trading 3.11% lower at Rs 290.15 on NSE.
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