Cigarette stocks seem to be going up in a smoke today; VST Inds is among the top five losers on the BSE, going down 4.5% to an intraday low at Rs.287.20. ITC went down 2.5% to Rs.396 and Godfrey Phillips is down more than 4.5% at Rs.6256.

The reason? Though unverified yet. Economic Times today reported that the Govt might increase GST on cigarettes and other tobacco products once the government stops levying the compensation cess on these products.

Currently, as per Cleartax, the Compensation cess rates on cigarettes are as follows:

1. Cut tobacco: 0.14R per unit
2. Unmanufactured tobacco (with lime tube) featuring a brand name: 0.36R per unit
3. Pan masala (maximum rate): 51% of the retail sale price per unit (previously 135% ad valorem)
4. Tobacco: Rs 4,170 per thousand sticks plus 290% ad valorem or 100% of the retail sale price per unit

With the Govt looking at options to increase revenue, this is usually a “go-to” as tobacco and tobacco products generate tax revenues of around Rs.75,000 crore per annum.

At present, the total tax burden is at 53% which is way below WHO’s recommended 75%. Govt is supposedly contemplating increasing GST to 40% + excise duty.