Indian Tobacco Stocks Drop 1-1.4% After Reports of New Cesses on Tobacco Products

Shares in leading tobacco companies including ITC, Godfrey Philips, and VST Industries declined by 1% to 1.4% after media reports of proposed new legislative bills introducing additional cesses on tobacco products were made public. The Central Excise (Amendment) Bill, 2025, and the Health Security se National Security Cess Bill, 2025, seek to replace the expiring GST compensation cess with a new cess to maintain the overall tax burden.

Currently, tobacco products attract a 28% GST plus a compensation cess that can vary from 5% to 290%. With the compensation cess set to end by March 2026, the new bills propose excise rates maintaining or exceeding current levels with total taxation potentially hitting as high as 40% GST plus added excise duties. These measures aim to stabilize government revenue but intensify the regulatory and financial pressure on the tobacco sector.

Industry experts view the development as a regulatory tightening balancing fiscal needs with health objectives, though it impacts pricing strategies, profit margins, and market dynamics for tobacco companies.

Key Highlights:

Tobacco stocks fell 1%-1.4% on announcement of new cess proposals

Proposed bills replace GST compensation cess on tobacco and pan masala products

Current tax structure: 28% GST plus variable compensation cess (5%-290%)

New levies expected to maintain or increase overall tax incidence to 40% GST plus excise

Impact on tobacco companies’ pricing, margins, and regulatory compliance

Government aims to sustain revenue while promoting public health goals

Source: Times of India, Economic Times, Financial Express, Business Standard