Shares of ITC, India’s leading tobacco and FMCG conglomerate, are expected to be in focus today after news emerged of a proposed hike in the Goods and Services Tax (GST) rate for sin goods, including cigarettes and tobacco products. The Group of Ministers (GoM) on GST rate rationalization has recommended introducing a special 35% tax rate for demerit goods such as tobacco, cigarettes, and aerated beverages. This marks a significant move in restructuring tax rates under GST, seven years after its rollout.
The proposed hike, from the current top GST slab of 28%, aims to minimize revenue losses resulting from tax cuts on other essential items, officials said. This recommendation will be reviewed at the GST Council meeting on December 21. If approved, the hike could impact ITC’s core cigarette business, which accounts for nearly 45% of its overall revenue. Investors will watch the stock closely for any impact on volumes or margins due to the higher tax burden.
ITC shares recently witnessed a rally, supported by robust financial performance and its diversification into FMCG, hospitality, and agribusiness segments. The company has been striving to reduce its dependency on tobacco, with increasing contributions from its FMCG portfolio. However, the proposed GST rate hike could weigh on sentiment if it translates into lower demand or higher retail prices for cigarettes.
Additional Context
The tobacco industry has faced multiple regulatory and tax pressures over the years, with frequent hikes in GST compensation cess and stricter anti-smoking laws. ITC has often demonstrated resilience by navigating such challenges through price adjustments and product portfolio strategies. Investors will be keen to see how ITC addresses this latest development, especially as it continues to expand its non-tobacco segments, which have shown promising growth.
