There has been a huge fall in cigarette stocks on Thursday after the government imposed a new tax on cigarettes. This tax has made cigarettes expensive for the estimated 10 million smokers in the world’s most populous country. A decline of 10 percent was seen in the shares of ITC, a major cigarette manufacturing company. Due to which the company’s valuation has suffered a loss of more than Rs 50 thousand. On the other hand, the shares of Godfrey Phillips India, the distributor of Marlboro in the country, have fallen by more than 15 percent.
The Finance Ministry has decided to impose excise duty of Rs 2,050 to Rs 8,500 per 1,000 sticks depending on the length of cigarettes from February 1. The move marks the return of a permanent excise duty system for cigarettes, replacing the temporary duty that has been in place for the past few years. It has been said in the order that this new tax will be different from the existing 40 percent GST.
Big fall in company’s shares
There was a big fall in the shares of cigarette manufacturing company ITC on Thursday. If we look at the data, at 12:50 pm the company’s shares are trading at Rs 369.05 with a decline of 8.42 percent. Whereas during the trading session the company’s shares fell by 10 percent to Rs 362.70, which is the lowest level in about one and a half years. However, a day earlier on Wednesday the company’s shares had opened at Rs 402.25. At the same time, there is a big decline in the shares of Marlboro cigarette distributor company Godfrey Phillips India. If we look at the data, it is trading at Rs 2,306.10 with a decline of 16.50 percent at 12:50 pm. Whereas during the trading session the company’s shares fell by more than 19 percent to Rs 2,230.15. A day ago the company’s shares had closed at Rs 2,761.55.
This company suffered a loss of more than Rs 50 thousand crores
ITC, the country’s largest cigarette manufacturing company, has suffered the biggest loss in terms of valuation in the stock market. If we look at the figures, when the stock market closed on Wednesday, the valuation of the company was Rs 5,04,917.07 crore. During the trading session on Thursday, the market value of the company came down to Rs 4,54,425.37 crore. This means that the valuation of the company has decreased by Rs 50,491.7 crore.
What will be the impact on cigarette companies?
Investors have become nervous about the impact of this duty on the profits of cigarette manufacturers and share prices have fallen drastically. According to an ICICI Securities analyst quoted by Reuters, “This duty will increase the overall cost of 75-85 mm cigarettes by 22%-28%. Cigarettes longer than 75 mm account for about 16 per cent of ITC’s total sales and their prices are likely to increase by Rs 2-3 per cigarette as a result of this duty. The announcement was made by the government in December through the Central Excise (Amendment) Bill. 2025, which replaces the temporary duty on cigarettes and tobacco products.
Is another price hike likely?
Although there is no clear direction, many analysts believe that cigarette manufacturers may have to increase prices due to increased taxes. The government estimates that there are 10 crore smokers in India. After the re-introduction of excise duty, there will be multiple levels of taxes on cigarettes. These include 28 per cent GST, compensation cess and value-based duty linked to cigarette size, as well as newly notified excise duty. Despite this, the total tax on cigarettes in India currently stands at around 53 per cent of the retail price, which is well below the standard of 75 per cent recommended by the World Health Organization for the purpose of discouraging tobacco consumption.
Law implemented in place of temporary tax
In December, Parliament approved the Central Excise (Amendment) Bill, 2025, which provides the legal basis for the new excise duty regime. This law replaces the temporary system under which taxes were imposed on cigarettes and other tobacco products. The government says a stable excise duty structure is necessary to ensure certainty in revenue collection from tobacco and to align taxation with public health objectives.