By Timothy S. Donahue
Top Takeaways:
- Sharp market reaction: Shares of ITC and Godfrey Phillips fell steeply after India announced a new cigarette excise duty effective Feb. 1.
- Higher tax burden: The new levy adds to an existing 40% GST, raising costs by an estimated 22%–28% for key cigarette segments.
- Illicit trade risk: Analysts warn higher prices could pressure legal volumes and benefit the illicit cigarette market.
Shares of India’s major cigarette manufacturers fell sharply after the government introduced a new excise duty on cigarettes, raising costs for an estimated 100 million smokers and reigniting investor concerns about volumes, pricing, and illicit trade.
Shares of ITC, the country’s largest cigarette maker and producer of brands such as Gold Flake, fell 9.2%, while Godfrey Phillips India, which distributes Marlboro in India, plunged 14.1%. ITC shares fell to 365.50 (US$4.60)rupees, their lowest since April 2023, and were on track for their worst single-day decline in nearly six years. Godfrey Phillips was heading for its steepest fall since November 2016.
ITC was the biggest decliner in the Nifty 50 and also led losses in the Nifty FMCG Index, which was trading about 3.2% lower, according to media reports.
The selloff followed a late-Wednesday notification from India’s Ministry of Finance, which set a new excise duty of 2,050 to 8,500 rupees per 1,000 cigarette sticks, depending on cigarette length. The new duty will take effect on Feb. 1 and will apply in addition to India’s existing 40% Goods and Services Tax (GST) on cigarettes.
Analysts said the move represents a significant increase in the tax burden on the category. Jefferies described the decision as “a clear negative,” warning that higher prices could pressure legal sales volumes and reignite concerns about market share losses to illicit cigarettes, an issue that has historically accompanied sharp tax increases in India.
Jefferies recently downgraded its rating for ITC Ltd. to “Hold” from “Buy” and lowered its price target.
Although the government did not specify how the duty hike will translate into retail prices, analysts expect manufacturers to pass at least part of the increase on to consumers. According to ICICI Securities, the new excise duty amounts to a 22%–28% increase in overall costs for cigarettes measuring 75–85 millimeters.
ICICI Securities added that cigarettes longer than 75 mm account for roughly 16% of ITC’s sales volume and are likely to see price increases of about 2 to 3 rupees per stick due to the higher levy.
India has periodically raised tobacco taxes as part of a broader effort to reduce smoking prevalence and address the public health costs of tobacco use. Smoking-related illnesses are widely viewed by policymakers as a significant drain on public resources, prompting measures such as large, graphic health warnings and periodic tax adjustments.
For the industry, however, the latest increase underscores ongoing regulatory and fiscal risks, particularly in a market with high price sensitivity where the illicit cigarette trade already accounts for a meaningful share of consumption.
The tax move has also drawn strong opposition from tobacco growers, with thousands of farmers staging protests across multiple districts in Andhra Pradesh, and demonstrations reported in parts of Karnataka, according to local reports.
Farmers held road blockades (rasta rokos), sit-ins (dharnas), and rallies, calling on the central government to roll back what they described as excessive tax increases and to reissue rates they say would be revenue-neutral, protect farmer livelihoods, and discourage smuggling. Protesters raised slogans criticizing what they characterized as a unilateral decision by the Centre to impose higher taxes on tobacco products.
The Federation of All India Farmer Associations also issued a sharp response to the government’s notification, objecting to the new duty rules on chewing tobacco, jarda scented tobacco, and gutkha packing machines, and warning that higher levies could have downstream effects on farmers and legal supply chains.
