ITC Stock Sees Gains Despite Tobacco Tax Cut Proposal Rejection by GST Committee

Despite the GST Council’s Fitment Committee rejecting a proposal by the tobacco industry to effectively reduce tax rates, shares of ITC opened 0.40% higher on October 5. As of 9:40 am, the stock was trading 0.66% higher at Rs 438.85.

The tobacco industry had suggested a uniform additional compensation cess on various tobacco products, including cigarettes, bidis, and smokeless tobacco items. Additionally, they proposed a lower compensation cess on cigarette sticks measuring up to 70 mm. Meanwhile, the auto component industry had also sought a reduction in the GST rate on electric vehicle (EV) batteries from 18% to 5%.

Sources reported that the GST Council Fitment Committee has also rejected the proposal related to EV batteries.

This development could potentially impact the stocks of cigarette manufacturers such as ITC. Cigarettes still constitute a significant portion of ITC’s business, which also includes agri-products, hotels, and non-cigarette FMCG products. In the first quarter of FY24, ITC’s cigarette business saw a 13% growth in revenue, reaching Rs 7,465.27 crore compared to the previous year.

Currently, tobacco products like cigarettes, chewing tobacco, and gutkha are subject to GST, Compensation Cess, Basic Excise Duty, and National Calamity Contingent Duty (NCCD), while Bidis are subject to GST, Basic Excise Duty, and NCCD.

According to sources cited by CNBC TV18, the tobacco industry sought a revision of the compensation cess on products like 70mm cigarettes, arguing that the bidi industry is exempt from such cess. However, the Fitment Committee concluded that there was no need for a change, considering that the bidi industry is small-scale and therefore excluded from the cess.

Despite the rejection of these proposals, ITC’s stock managed to maintain its positive trajectory during early trading hours on October 5.