ITC Share Fall After Tax Hike: Changes in the tax structure immediately impact the shares of cigarette companies. Shares of cigarette manufacturing companies have come under pressure due to changes in the government’s tax structure for tobacco products. This government decision will come into effect from 1 February 2026. Cigarette manufacturing companies include ITC and Godfrey Phillips.

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Shares of ITC and Godfrey Phillips fell

The government has increased GST on tobacco products from 28 percent to 40 percent. 18 percent GST will be imposed on beedis. However, the government has removed the compensation cess. After this decision, ITC shares fell by about 10 percent and Godfrey Phillips shares fell by more than 17 percent.

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Government made major changes in the tax structure of cigarettes

The government has implemented a new method of calculating excise duty on the basis of machine capacity. Under the new framework, specific excise duty will be based on the capacity and retail prices of the machine.

This new structure will replace the old basic excise duty system, in which duty on 1,000 cigarette sticks ranged from Rs 5 to Rs 10 and ranged from Rs 2,100 to Rs 8,500, depending on the retail price. The new tax structure will make cigarettes very expensive.

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Fear of increase in taxes by 40-45 percent

It is expected that the new tax structure will also include National Calamity Contingent Duty (NCCD), which may increase the total tax burden by 40 to 45 percent. The exact amount of NCCD has not been announced yet. Tax evasion can be curbed by imposing duty on annual production capacity instead of production volume.

In the long run, big companies like ITC can benefit from this. However, at present the companies will have to pass the increased tax burden on the customers, due to which the prices of cigarettes may increase by 20 to 30 percent.

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Impact on volume growth and margins

This change may also affect cigarette sales and margins. There is also a fear of increase in illegal cigarette sales. Its negative impact may be visible on ITC’s performance in a short time.

In case of decline in demand in cigarette business, ITC’s focus may increase on other businesses like FMCG, agriculture and paper. In the long run, these businesses can play an important role in the growth of the company.

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ITC’s strong hold in cigarette business

ITC has strengthened its portfolio in the cigarette business by emphasizing innovation and launching new products. The distribution network of the company is quite large.

Many new and innovative variants have been launched under key brands like Classic, Gold Flake and American Club, further strengthening ITC’s position in the cigarette market.

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