Traders pause litting up ITC cigarettes on cess hike

The share of ITC in today’s trading session plummetted more than 12 per cent, dragging the Sensex almost 200 points down to 31876 while writing. The reason behind this massive drop in the stock of ITC is that GST council on Monday raised compensation cess on cigarettes to ensure that effective tax rate post GST will not come down. The rise in compensation cess of cigarettes is addition to the GST rate of 28% and 5% ad valorem.

The hike in cigarettes cess will induce cigarette makers to increase the price of cigarettes to mitigate the effect of rise in effective tax rate. This price hike will lead to impact on company’s volume growth.

The increase in compensation rates finalised by GST council for non-filtered cigarettes is Rs. 0.485 per cigarette for length up to 65 mm and Rs. 0.792 per cigarette for length up to 65-70 mm. The increased rate for filtered cigarettes is Rs. 0.485 per cigarette for length up to 65 mm, Rs. 0.621 per cigarette for length up to 65-70 mm and Rs. 0.792 hike per cigarette for length up to 70-75 mm.

The other cigarette makers such as Godfrey Philips India and VST Industries also felt the heat of increase in cess and both stocks were down by more than 7 per cent today. However, it managed to recover and at 10:45 a.m. they were trading nearly 4 per cent down.