Shares of ITC Ltd., India’s largest cigarette manufacturer, plunged nearly 10% on Thursday after the government announced a steep increase in excise duty on cigarettes, raising fresh concerns about sales volumes and profitability in the tobacco sector.
According to a government notification issued late Wednesday, excise duty on cigarettes will rise to a range of ₹2,050 to ₹8,500 per 1,000 sticks from February 1. Analysts estimate that if the National Calamity Contingent Duty continues, the effective tax hike could exceed 30%, far higher than what markets had anticipated.
The sudden policy move triggered heavy selling in tobacco stocks. ITC shares recorded their biggest single-day fall since 2020, while Godfrey Phillips India Ltd., which sells brands such as Marlboro and Four Square, closed nearly 17% lower. Trading volumes in both stocks surged to more than 20 times their recent averages, reflecting panic-driven exits by investors.
Brokerages warned that higher taxes could significantly dent cigarette consumption, which contributes over 40% of ITC’s total revenue. Analysts at Jefferies said the company may need to raise cigarette prices by at least 15% to offset the impact, a move that risks pushing consumers toward cheaper or illicit alternatives. Historically, sharp tax hikes have led to volume declines of up to 9% for ITC, market experts noted.
The tax increase comes at a difficult time for ITC, as its largest shareholder, British American Tobacco Plc, has been steadily reducing its stake, adding to pressure on the stock.
The government, however, defended the move, stating that higher taxes are aimed at discouraging tobacco consumption and reducing the long-term public health burden. India has over 250 million tobacco users, and tobacco-related diseases cost the economy trillions of rupees annually.
While the finance ministry maintains that higher taxes will not fuel smuggling, investors remain cautious, bracing for near-term volatility in tobacco stocks as the industry adjusts to the new tax regime.
