India cigarette excise duty hike
By Krishna Arya | Networkbharat.com
India cigarette excise duty hike 2025 : Cigarette stocks witnessed a sharp sell-off in early morning trade after the government announced a fresh excise duty on cigarettes, triggering concerns over rising prices, shrinking margins, and near-term demand pressure. The move has once again put the tobacco sector under the spotlight, with investors reacting swiftly to the increased tax burden.
Shares of ITC, India’s largest cigarette manufacturer and market leader, slipped more than 4% in early trading. Meanwhile, Godfrey Phillips India, which distributes Marlboro cigarettes in the country, saw its stock plunge by over 8%, reflecting investor anxiety over profitability.
What Did the Government Announce?
The Finance Ministry notified a new excise duty structure on cigarettes, effective February 1, setting duties between ₹2,050 and ₹8,500 per 1,000 sticks, depending on cigarette length.
This decision marks the return of a permanent excise framework, replacing the temporary and ad-hoc levies that had been in place for several years. Importantly, the newly notified excise duty will be in addition to the existing Goods and Services Tax (GST), significantly increasing the overall tax load on cigarettes.
Why Did Cigarette Stocks Fall Sharply?
Markets reacted negatively as higher excise duty directly impacts cigarette companies’ margins. According to analysts, manufacturers may not be able to pass on the full tax burden to consumers immediately, which could hurt earnings in the short term.
An analyst at ICICI Securities, quoted by Reuters, said the new duty could increase the total cost of 75–85 mm cigarettes by 22%–28%.
He further noted that cigarettes longer than 75 mm account for around 16% of ITC’s total volumes, and the revised tax structure could lead to a price hike of ₹2–3 per stick. Such increases often result in temporary volume declines as consumers adjust to higher prices.
Impact on Smokers and Consumption
India is estimated to have around 100 million smokers, making it one of the world’s largest tobacco-consuming nations. With the reintroduction of excise duty, cigarettes will now attract multiple layers of taxation, including:
- 28% GST
- Compensation cess
- Size-based value levy
- Newly imposed excise duty
Despite this, total taxation on cigarettes in India is still estimated at around 53% of the retail price. This remains significantly lower than the 75% benchmark recommended by the World Health Organization to discourage tobacco consumption.
Public health experts believe higher cigarette prices can gradually reduce smoking rates, especially among young and low-income consumers. However, industry experts caution that steep hikes may also push users toward illicit or unregulated tobacco products.
Will Cigarette Prices Rise Again?
Although the government has not issued any direct instruction on retail pricing, analysts widely expect cigarette manufacturers to raise prices in phases to offset the higher tax burden. Historically, companies like ITC have used calibrated price hikes to protect margins while minimizing demand shocks.
In the short term, however, uncertainty around pricing strategy and consumer response has made investors cautious, leading to the sharp decline in cigarette stocks.
Law Replaces Temporary Tax System
The latest excise duty notification follows Parliament’s approval of the Central Excise (Amendment) Bill, 2025, passed in December. The new law provides legal backing to a stable and predictable excise regime, replacing the temporary levies that were frequently extended in previous years.
According to the government, a permanent excise structure is essential to:
- Ensure certainty in revenue collection
- Reduce ambiguity for businesses
- Align tobacco taxation with long-term public health goals
What Lies Ahead for Tobacco Stocks?
While the immediate market reaction has been negative, some analysts believe the long-term impact may be manageable. Large players with strong pricing power, diversified businesses, and robust cash flows may eventually stabilize after adjusting prices.
However, in the near term, cigarette stocks are likely to remain volatile, as investors assess how effectively companies absorb or pass on the new tax burden.
Final Takeaway
The fresh excise duty on cigarettes has sent shockwaves through Dalal Street, dragging down major tobacco stocks and raising concerns over profitability and demand. As higher taxes kick in from February 1, all eyes will be on how cigarette makers adjust prices—and how India’s 100 million smokers respond.
For now, the government has signaled a clear intent: stable taxation, predictable revenue, and stronger alignment with public health objectives—even if markets need time to adjust.
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