ITC and other stocks to be affected as Govt. plans to increase tax on Cigarettes & Tobacco

According to a report by The Economic Times (ET), the government is considering increasing the Goods and Services Tax (GST) on cigarettes and other tobacco products. This change could take place once the compensation cess on these products is phased out.

Currently, tobacco products are subject to a 28 percent GST, along with various other levies, bringing the total tax burden to 53 percent. One of the proposed options is to raise the GST to 40 percent, the highest permissible slab, and add an excise duty on top of that.

The primary goal behind this adjustment is to ensure that tax revenue from tobacco products remains stable after the compensation cess ends in March 2026. According to officials, the government intends to avoid introducing a new cess to replace the existing one.

Here is a list of a few stocks that will be affected by GST Increase: 

1. ITC Ltd

ITC is one of India’s largest and most diversified conglomerates, with a significant presence in the Fast-Moving Consumer Goods (FMCG), including cigarettes. The company also has interests in hotels, paperboards & packaging, and agribusiness. Headquartered in Kolkata, ITC operates across various segments, making it a key player in the Indian economy.

As of February 21, 2025, ITC’s market capitalization stands at approximately Rs.5.02 lakh crore, with its shares trading at Rs.401.20 apiece.

A rise in GST on cigarettes could significantly impact ITC’s profitability, as higher taxes may lead to decreased sales volumes. The impact of these changes will depend on ITC’s ability to absorb the increased tax burden or pass it on to consumers without significantly affecting demand.

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2. Godfrey Phillips India Ltd.

Godfrey Phillips India Ltd. is a prominent player in the Indian cigarette industry. The company manufactures and markets cigarettes under popular brands like Four Square and Red & White.

As of February 21, 2025, Godfrey Phillips India Ltd. has a market capitalization of around Rs.32,277 crore, with shares priced at Rs.6,208.00 each.

An increase in GST rates on cigarettes could pose challenges for Godfrey Phillips, potentially leading to reduced sales and profitability. The company’s performance will hinge on its ability to adjust pricing strategies and maintain market share in a competitive environment.

3. VST Industries Ltd.

VST Industries Ltd. is another key cigarette manufacturer in India, known for its brands like Charms and Total. Based in Hyderabad, the company has a long-standing presence in the Indian tobacco market.

As of February 21, 2025, VST Industries Ltd. holds a market capitalization of approximately Rs.4,735 crore, with shares trading at Rs.278.80 apiece.

The impact of a GST hike on VST Industries could be substantial, affecting sales volumes and overall revenue. The company’s ability to innovate and adapt its product offerings to changing consumer preferences will be crucial in mitigating the adverse effects of increased taxation.

Written by – Siddesh S Raskar

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