Cigarettes companies trade lower as prices expected to come down post GST implementation

ITC share prices saw a drop of 1.9% and was trading at Rs 330.8, VST Industries declined 0.8% to Rs 3,600 and Godfrey Phillips India also reduced 0.9% to Rs 1,248.45 also reduced in the morning hours of Monday’s trading session.
 
If prices come down post the implementation of the Goods and Services Tax (GST), the government may consider hiking the compensation cess on cigarettes and this speculation is the reason for drop-in share price of cigarette manufacturing companies.
 
Cigarettes fall in the highest 28% bracket after implementation of GST and attract an additional cess depending on their length. However, the effective levy is about 8% lower than earlier, as per leading research agencies. This is mostly due to the drop of additional excise duty under GST regime.
 
However, cigarette manufacturing companies are yet to revise prices post GST. If the price of cigarettes come down, the government may not look at levying central excise duty but may consider increasing the cess on the demerit good.