News and Society

GST HIKE ON CIGARETTES

By Anisha Gupta
  • Jul 18, 2017
  • 210 views

The GST Council on Monday hiked the cess on cigarettes to take away the "windfall" manufacturers were reaping due to an anomaly that crept in after the GST rate fixation.

 



The compensation cess on cigarettes consists of two components -- an ad valorem tax of 5 per cent and another numerical cess on each category of filter and non-filter varieties.

While the ad valorem has remained the same, the numerical cess linked to the length of cigarettes was increased by the Council.

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.

For filter category, 65 mm cigarettes will be charged Rs. 2,076 per 1,000 units, 65-70 mm will be charged Rs. 2,747 per 1,000 units and 70-75 mm will be charged Rs. 3,668 per 1,000 units.

For other filter cigarettes the ad valorem has been increased to 36 per cent plus Rs. 4,170 per 1,000 units.

Whether cigarette makers will increase prices is currently unclear. However, brokerages believe the companies would have to hike prices in order to protect margins.

The increase in cess would bring in Rs 5,000 crore of additional tax revenue which otherwise would have gone to the manufacturers, Jaitley said after the emergency meeting that took place on Monday evening through video conferencing.

On Tuesday, other cigarette makers such as Godfrey Philips and VST Industries also fell sharply in trade. While Godfrey Philips fell 10.35 per cent to 1,100.05, VST Industries slumped 8.31 per cent to Rs 3,276.

Cigarette makers on Tuesday were choking in trade, with market leader ITC being hit the worst, its stock falling as much as 15 per cent to Rs 276.90 on the BSE . The slump comes on the back of the GST (Goods and Services Tax) Council led by Finance Minister Arun Jaitley on Monday evening hiking compensation cess on cigarettes. The hike came into effect from the midnight of Monday and Tuesday.



The Sensex tanked as much as 450 points while the Nifty briefly slipped below the 9,800 mark to 9,792.05. Losses in the market were led by ITC, which has the second highest weightage (7.65 per cent) in the broader Nifty.

Salt-to-hotels conglomerate ITC's cigarette division contributes nearly two-thirds of the FMCG (fast moving consumer goods sector) major's total revenues. Over 60 per cent of ITC's revenues come from its cigarettes business.

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