GST effect: Investors dump cigarette makers

NEW DELHI: Shares of cigarette makers witnessed brisk selling in Monday’s session after a panel on GST headed by chief economic adviser (CEA) Arvind Subramaniam recommended a 40 per cent tax on tobacco and tobacco products, which, if approved, may weigh heavy on the sector, which has already been grappling with low volume growth.

Cigarette major ITC fell 6.57 per cent to hit a low of Rs 314.60 on BSE. The stock is down 8.88 per cent so far this calendar compared with a 1.74 per cent rise in the BSE FMCG index during the same period. At 11 am, Godfrey Phillips slipped 5.47 per cent (down 5.56 per cent), followed by VST Industries and Golden Tobacco, which declined 3.18 per cent and 1.35 per cent, respectively.

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The much-awaited bill will be pushed by the government in Parliament this week, with a majority of participants now turning optimistic after the panel recommended a standard 17-18 per cent tax and removed the 1 per cent inter-state tax, as demanded by the opposition parties.

Cigarette makers have been raising product prices frequently to avoid erosion in margins. Cigarette companies raised prices in October in the wake of the VAT hikes by Uttar Pradesh and Maharashtra governments.

A 40 per cent GST on cigarettes is expected to further increase consumption of lightly taxed or tax-evaded tobacco products such as bidi, khaini, chewing tobacco, gutkha and illegal cigarettes, which already constitute over 89 per cent of total tobacco consumption in India.

In the last three years, excise and VAT on cigarettes at per unit level has gone up cumulatively by 98 per cent and 124 per cent, respectively. As a result, cigarette sales volumes are down more than 15 per cent for the past three quarters, a senior industry official told Economic Times.