CHENNAI: Three days into the new tax regime, cigarette firms saw a sharp spurt in share prices on the backs of a government notification stating that cigarettes will be exempted of additional excise duty under the goods and services tax (GST) regime.
The decision, according to analysts, is set to see as much as 7-9 per cent decrease in total taxation on cigarettes under the new tax system. The reports saw share prices of India’s largest cigarette maker ITC shoot up to a record high of Rs 353.20 apiece.Other cigarette makers like Godfrey Phillips India (3.4%) and VST Industries (4.4%) also saw significant rises.
Under GST, cigarettes have been put under the highest tax slab of 28 per cent along with an additional five per cent cess and another cess based on varying length of the cigarettes.
The spike in investor sentiment comes after weeks of uncertainty on what final taxation on cigarettes would be under GST. The excise department makes it clear that basic excise duty and additional excise duty, will not be levied, but National Calamity Contingent Duty will continue.
According to Macquarie Research, the tax savings in the GST is mainly on account of removal of multi-layer tax regime. Earlier VAT was levied on excise duty, while GST now will not be applicable on Cess. Also, higher specific tax share in GST regime gives companies like ITC a competitive advantage.