ITC Ltd is likely to raise cigarette prices by 20–40% across brands, with fresh shipments expected to reach the market soon. Retailers are also seen selling existing inventory at higher prices. The developments come after the government, on February 1, notified the end of the GST compensation cess and the rollout of a new tobacco tax regime, ET Now reported, citing sources.
Shares of ITC Ltd extended gains for a third straight session, rising 2% to Rs 331 on the day and about 5.5% over the past three sessions. Meanwhile, Godfrey Phillips India Ltd surged 12% to Rs 2,315 per share on the BSE, taking its two-day rally to more than 15%. Another cigarette maker, VST Industries Ltd, advanced 3.3% in the morning.
Under the new framework, excise duties on cigarettes were restructured to a range of Rs 2,050 to Rs 8,500 per 1,000 sticks, alongside a 40% GST. This has materially raised the overall tax burden on cigarettes, triggering concerns over demand, margins and the risk of increased illicit trade.
Adding to the unease is a technical change in the National Calamity Contingent Duty (NCCD) announced in the Budget.
The government raised the statutory NCCD rate on tobacco products from 25% to 60%, with effect from May 1, 2026. However, the Budget also clarified that the effective duty rate will continue at 25% through a notification, meaning there is no immediate increase in tax outgo for cigarette companies. In simple terms, this is not a tax hike today, but a future enabling provision. The government has created room to raise the duty later without changing the law again.
ITC Q3 snapshot
In the December quarter, ITC, the largest cigarette manufacturer in India, reported 6.2% year-on-year revenue growth, driven by double-digit growth in FMCG-Others and steady momentum in cigarettes. Cigarette revenues grew 8%, supported by 7% volume growth.Also read: Ola Electric shares rebound 5% after 11% fall in 4 sessions. What’s driving the surge?
Margins in the cigarette segment, however, slipped to a multi-quarter low of 59.9%, contracting 163 basis points YoY due to the consumption of high-cost leaf inventory. Management has indicated that leaf procurement prices have moderated in the current crop cycle, which could support margins in the coming quarters.
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