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ITC, Godfrey Phillips, VST Industries rally as cess on cigarettes remain unchanged

The country’s largest cigarette maker ITC surged by 3.8% on Monday.

, ET Bureau|
Jul 23, 2018, 07.35 PM IST
The country’s largest cigarette maker ITC surged by 3.8% on Monday.
Kolkata: With the last GST Council meeting on Saturday not making any changes in cigarette taxation unlike what the street was expecting, cigarette stock of top manufacturers like ITC Ltd, Godfrey Phillips India and VST Industries rallied on Monday.

The country’s largest cigarette maker ITC Ltd surged by 3.8% on Monday’s closing at the BSE to touch Rs 283.85, while Godfrey Phillips India went up by 8.43% to close at Rs 756.55. Share price of VST Industries was up by 14.08% to close at Rs 2849.5 at the BSE on Monday when the benchmark Sensex was up by 0.61%.

“Cigarette stocks like ITC, VST and Godfrey Phillips will rerate as some part of street was expecting increase in cess,” said Abneesh Roy, senior VP at Edelweiss Securities.

The cigarette industry was significantly impacted last year by the sharp upward revision in GST compensation cess whereby tax on cigarettes rose sharply by 13% with an even steeper increase of 19% for the king-size filter segment.

Coupled with the increase in excise duty rates announced in last year budget, this resulted in an incremental tax burden of over 20% on the cigarette business post implementation of GST.

ITC Ltd had recently reported that the share of duty-paid cigarettes has come down substantially in 2017-18 accounting for 11% of the total tobacco consumption in the country due to high and discriminatory taxation on the sector while overall tobacco consumption in the country continues to grow. The company said the tax on cigarettes has nearly trebled over the last six years whereby the taxation is about 50 times higher than other tobacco products.

ITC has estimated the exchequer is losing more than Rs 13,000 crore revenue annually on account of tax evasion on cigarettes which is even higher when the evaded taxes on other tobacco products are also considered. While the legitimate cigarette industry has declined steadily since 2010-11 at a compound annual rate of 4.8% per annum, illegal cigarette volumes have grown at about 5% per annum during the same period, the company said.
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