Shares of ITC and Godfrey Phillips India experienced a significant downturn on Friday, January 2, 2026, following the government's announcement of a steep increase in excise duties on cigarettes. The Finance Ministry's revised duty structure, set to take effect on February 1, has sent ripples through the industry, sparking concerns about increased tax burdens and potential volume losses for legal cigarette manufacturers.
ITC's stock declined by 4.8% to hit a new 52-week low of Rs 346.60 on the BSE, while Godfrey Phillips shares fell by 4.3% to Rs 2,190. Earlier, on Thursday, January 1, the shares of both companies had already slumped, with ITC falling by 10% to a 52-week low of ₹362.70 and Godfrey Phillips facing a sharper cut of 19% to ₹2230.15.
The revised excise duty structure stipulates duties ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on the length of the cigarette. This new excise duty is in addition to the existing 40% Goods and Services Tax (GST). Analysts predict that the total tax incidence could rise significantly, potentially exceeding 20% and even reaching 30% if the National Calamity Contingent Duty (NCCD) remains applicable.
According to ICICI Securities, the duty increase translates to a 22%–28% rise in costs for 75–85 mm cigarettes. Cigarettes longer than 75 mm, which constitute approximately 16% of ITC's volumes, are likely to face price hikes of Rs 2–3 per stick. While cigarettes up to 65mm may see little or no tax increase.
Jefferies described the excise duty hike as a "meaningful negative surprise" for the sector, cautioning about a potential hit to volumes and earnings for companies like ITC in the near term. The brokerage, however, maintained a positive outlook on the stock in the long term.
The government's decision to increase excise duties on cigarettes is expected to impact the sales of ITC and other cigarette producers due to the anticipated rise in cigarette prices. The move could potentially lead to a shift in consumer behavior, with some smokers possibly opting for cheaper, potentially illicit, alternatives.
The excise duty hike comes after Parliament approved the Central Excise (Amendment) Bill 2025 in December, which replaces a temporary levy on cigarettes and tobacco products. The new levies on tobacco will be in addition to the GST rate and will replace the compensation cess currently levied on such goods.
The recent excise duty hike has raised concerns among investors and industry stakeholders, who fear that it could negatively impact the cigarette industry. The impact of the increased tax burden on cigarette sales and the overall financial performance of companies like ITC and Godfrey Phillips remains to be seen.
