Shares of India’s largest cigarette maker ITC Ltd. fell the most in six years after the government imposed higher tax on tobacco products.
From 1 February 2026, cigarettes will be charged an excise duty of ₹2,050-8,500 per 1,000 sticks, according to a government notification released late Wednesday. That’s on top of GST at 40% on tobacco-based products and cigarettes—also kicking in from 1 February.
ITC’s share price dropped as much as 9.8%, the most since 2020, while Godfrey Phillips India Ltd. dropped 17.6% on the BSE. ITC sells cigarette brands like Classic and Gold Flake, while Godfrey sells Marlboro and Four Square.
On 22 September 2025, the Narendra Modi government cut GST rates on soaps to small cars in the biggest indirect tax reforms since goods and services tax first came into effect on 1 July 2017. The rationalisation reduced the number of GST slabs to two (5% and 18%) from four (5%, 12%, 18% and 28%). A new GST slab of 40% was introduced for so-called sin goods—tobacco products and luxury items such as SUVs to Swiss watches and handbags.
The GST compensation cess was scrapped as part of the overhaul, which would have reduced the effective tax rate on tobacco products, but now an even higher excise duty has replaced it. The taxation is expected to make up the shortfall in GST revenue from other product categories.
At 25.3 crore people, India has the second-highest population of tobacco users.
To be sure, the cigarette tax is higher than previously anticipated by analysts and investors. It implies a tax hike of more than 30% if the National Calamity Contingent Duty continues, Jefferies Financial Group Inc. said.
“While we are still unsure on the final outcome, if confirmed, this will be a clear negative as volumes will be impacted and concerns would also re-emerge on risk of losing some volumes to illicit industry,” Jefferies analysts led by Vivek Maheshwari wrote in a 1 January note.
ITC might need to hike prices by “at least 15%” to pass on the overall impact to consumers, if not higher, Jefferies said. ITC gets more than 40% of its revenue from cigarettes.
British American Tobacco Plc, ITC’s largest shareholder, has been selling down its stake in the Indian cigarette maker. In May, it sold about $1.5 billion worth of stock to pare its holding to 22.91%.
