Tuesday, 18 December, 2018

Cigarette cess hiked: ITC down 13 percent, leads tobacco stocks' fall

Telecom Ministry will Cigarette cess hiked: ITC down 13 percent, leads tobacco stocks' fall
Melissa Porter | 18 July, 2017, 08:14

The BSE Sensex and Nifty fell on Tuesday as shares of cigarette maker ITC plunged almost 15 per cent after the GST Council yesterday chose to hike compensation cess on cigarettes. This is over an above present GST of 28 per cent, 5 per cent ad valorem cess and a fixed cess on cigarettes.

"It's shocking that after having stated publicly for so long that all taxes are meant to be kept "revenue-neutral", the GST Council went ahead and tinkered the structure in a manner that leads to an 8-16% hike in total indirect taxes on cigarettes". The cess rate varied from INR 2,126 to INR 4,170 for cigarettes of different lengths.

Accordingly, the tax burden on cigarettes will go up by Rs4.8-7.9 per 10 sticks, depending on their length and whether or not they have filters.

Up to 65 mm length: Increase of Rs 0.485 per cigarette.

For non-filter 65 mm cigarettes, the numerical cess has been raised to Rs 2,076 per 1,000 units; for non-filter 65-70 mm cigarettes it is Rs 3,668 per 1,000 units.

"Now this rate (fixed by the fitment committee) when translated as a part of cost of the cigarette itself, indicated that the impact of the cascading effect has not been factored in".

GST Council meeting on tax on tobacco was held through video conference showing the pressure on the government to act on the cigarettes issue. But this rate was lower than the pre-GST tax incidence and the choice before manufacturers was either to pass on the lower taxes to consumers by way of cutting rates or pocketing the windfall.

Jaitley also said the GST Council will meet in first week of August to review the progress of the implementation of GST, which was rolled out on July 1.

So far, the functioning has been fairly smooth and both the Center and state governments are responding to all the queries which are being raised. "Let us see, it is too early to comment on this", he said when asked if GST rates could be tweaked further.