Cigarette stocks ITC, Godfrey Phillips, VST down up to 4%. Here's why

Cigarette stocks like ITC, VST Industries and Godfrey Phillips fell up to 4% on Thursday after ET reported that the government may raise GST on tobacco products once it stops levying a compensation cess on these items.

Following the news, VST Industries shares fell 4% to day's low of Rs 287.20, Godfrey Phillips stock fell about 4% while ITC fell over 2% to fall below the Rs 400-mark.

As of now, cigarettes and other tobacco products face 28% GST besides cess and other levies, taking the total indirect tax to 53%.


Also read | Smokey Affair: GST on cigarettes, tobacco products may be raised

One of the suggestions being explored is to raise the GST to the highest permissible 40% and top that with an additional excise duty, ET reported.

The idea is to ensure that the tax revenue on these products does not fall once levying of the compensation cess ends, now scheduled for March 31, 2026. The government is not keen to replace the compensation cess with another cess, ET reported officials as saying.

Tobacco generated tax revenues of Rs 72,788 crore in FY23 to the government.

"Another option on the table is that of replacing the compensation cess with a health cess, but a few states are not in favour ... the Centre is also in principle not in the favour of bringing a new cess," the official added.

The GST Council had formed a Group of Ministers (GoM) on tobacco taxation, led by the then Odisha finance minister, Niranjan Pujari. The GoM proposed revising the cess component of GST, recommending that it be linked to a product's maximum retail price instead of the sales value.

The matter was later referred back to the fitment committee and the GoM on rate rationalization.