Shares of major cigarette companies experienced a significant drop following the government’s announcement of a forthcoming excise duty hike on cigarettes. ITC and Godfrey Phillips witnessed declines of up to 19% in intra-day trading on Thursday. The new excise duty, effective from February 1, ranges from Rs 2,050 to Rs 8,500 per thousand cigarette sticks based on their length.
The imposition of this additional tax is expected to raise cigarette prices, potentially leading to reduced demand and impacting the earnings of cigarette manufacturers. ITC shares plunged by as much as 10% on the BSE, reaching a 52-week low of Rs 362.70. The stock faced additional selling pressure due to a significant block deal during the session.
ITC, a heavyweight stock in benchmark indices with a market capitalization exceeding Rs 4.75 lakh crore, has seen a 17% decline in its shares over the past year. Meanwhile, Godfrey Phillips experienced a sharper decline, with its stock plummeting nearly 19% to a daily low of Rs 2,230.15 on the BSE. Despite this drop, the stock has still gained almost 49% over the last year.
The new excise duty on cigarettes will be applied in addition to the goods and services tax, with cigarettes and related products set to attract a GST rate of 40% starting next month. This duty replaces the earlier compensation cess on these items, following the approval of an amendment law by Parliament in December, which eliminates the temporary levy on cigarettes and tobacco products.
