Three days after the biggest tax regime in India was introduced the Goods and Services tax (GST,) Finance Minister Arun Jaitley, revealed cigarettes will be exempted from the additional excise duty.
The decision made will result in the decrease of the total taxation at 7 to 9 percentage under the new tax system.
Cigarette companies saw a boost in their shares after the new tax structure on cigarettes were clarified. ITC went up 5.7%, VST Industries went up 4%, and Godfrey Philips India went up 2%.
Cigarette makers have a reason to rejoice for the increase in volumes due to the expectation of lower cigarette prices. Cigarette prices will likely decrease 8 to 10% for the 64 mm category. This will result in the volume growth of 5 to 7% in the next two years.
This change will cause the decrease in illegal cigarette sales that have been increasing in the past five years. Legal cigarette sales had decreased 6% in the past years.
An ITC spokesperson said, “ITC is the market leader in the segment and once they reduce prices, other companies will follow suit. As a result, the effective prices, particularly in the 64 mm will come down and help bag market share from bidi and illegal cigarettes. This will lead to the overall volume growth in the legal cigarette sector.”
Senior Vice President of Edelweiss Security said, “Demonetisation had wreaked havoc on the illegal cigarette trade, which is cash based and the strict compliance laws under (the) GST will result in sellers sticking to legal cigarettes. The availability of illegal cigarettes will come down drastically.”
