Cigarette makers drop as GST Council hikes cess; ITC biggest loser

Finance Minster Arun Jaitley at GST Council meeting. Representational image. Pic: IANS

The Goods and Services Tax (GST) Council on Monday raised cess rates on cigarettes which will help the government earn Rs 5,000 crore more. Companies that make cigarettes dropped as investors rushed to sell shares. ITC Ltd lost nearly 15% on Tuesday morning as the company saw one of its biggest single-day declines in nearly 25 years.

"In the first 15 days of GST implementation, it was noted that 28 % tax plus compensation cess on cigarettes, when translated, had not factored in the impact of cascading effect, resulting in windfall gains for cigarette companies," Finance Minister Arun Jaitley said on Monday.

The GST Council had earlier decided to to keep cigarrettes in the highest GST slab of 28% in line with the weighted average VAT rate of 28.7 % in the earlier regime.

The compensation cess on cigarettes consists of two components -- an ad valorem tax of 5 % and a numerical amount on each category of filter and non-filter varieties.

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While the ad valorem remains the same, the numerical amount depending on the length of cigarettes was increased here on Monday by the Council.

For non-filter 65 mm cigarettes, the numerical cess has been raised to Rs 2,076 per 1,000 units; for non-filter 65-70 mm cigarettes it is Rs 3,668 per 1,000 units.

For filter category, 65 mm cigarettes will be charged Rs 2,076 per 1,000 units, 65-70 mm will be charged Rs 2,747 per 1,000 units and 70-75 mm will be charged Rs 3,668 per 1,000 units.

For other filter cigarettes the ad valorem has been increased to 36 % plus Rs 4,170 per 1,000 units.

The new tax rates will come into effect from Monday midnight, Jaitley said.

Monday saw the 19th meeting of the GST Council.

"The total tax incidence on cigarettes in the GST regime has come down, compared with total tax in pre-GST regime. While any reduction in tax incidence on items of mass consumption would be welcome, the same would be unacceptable in case of demerit goods like cigarettes," the Finance Ministry said.