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Cigarette Excise Duty Hike — The estimated financial impact on ITC, Godfrey Phillips explainedThe government had already flagged higher GST on cigarettes in September. Therefore, the move to 40% GST effective February 1, 2026, compared to 28% plus additional duties, and cess was not the real shock. The real surprise was in the details.By Mangalam Maloo  January 1, 2026, 12:00:17 PM IST (Published)2 Min ReadShares of ITC Ltd. are down 9%, while those of Godfrey Phillips are down 15% on the first day of 2026 after the latest notification on the cigarette excise duty.

The government had already flagged higher GST on cigarettes in September. Therefore, the move to 40% GST effective February 1, 2026, compared to 28% plus additional duties, and cess was not the real shock. The real surprise was in the details.

Here's what the market had not factored in:

New excise duties coming out in excess of the current tax structure.

As a result, the overall tax incidence goes up much higher than expected.

This is the earlier tax structure:

GST: 28%

Specific Cess: ₹2,076 - ₹4,170 per ₹1,000 sticks

Ad valorem Cess between 5% to 36%

NCCD: ₹510 - ₹850 per 1,000 sticks

Here's the expected feared taxation:

40% GST

New excise duty between ₹2,150 - ₹8,500 per 1,000 sticks

An Unchanged NCCD

Here's what the initial math suggests:

Total tax per stick goes up between 20% to 40%

Tax as a percentage of MRP moves to 65% to 80% of MRP from 50% to 60% earlier

Companies may need to hike prices between 18% to 35% to pass this increase to customers

No price hikes could mean an EBIT impact of over 40%, while a price hike could impact volumes

What is the street seeking clarity on?

The exact manner and quantum of the tax implementation

Impact on volumes if the prices are raised

Impact on margins if the prices are not raised

and a long-term impact on the legal cigarette industry

"While we are still unsure on the final outcome, if confirmed, this will be a clear negative, as volumes will be impacted and concerns would also re-emerge on the risk of losing some volumes to the illicit industry," brokerage firm Jefferies wrote in its note.

The brokerage also added that ITC may also have raise prices by at least 15% to pass on the overall impact to consumers, if not more.Continue ReadingTagscigarettecigarette stocksexcise dutyGodfrey PhilipsITC share priceITC sharesshare market today