ITC on Tuesday bore the brunt of the GST Council's decision to hike cess on cigarettes as its stock tumbled to lose over Rs 45,000 crore in market cap today. At 11:34 am, the stock of cigarettes-hotel (FMCG) major ITC was trading 11.50 percent or 37.45 points lower at Rs 288 on the BSE.
The GST Council's decision has affected most tobacco stocks, including the stock of Modi Group firm Godfrey Phillips India which fell 5.01 percent or 61.50 points at 1166 level.
The stock of Hyderabad-based VST Industries was down 4.65 percent or 165 points to 3395 level. Meanwhile, some brokerages have even downgraded the ITC stock. CLSA has downgraded the stock from buy to sell and reduced target price from Rs 417 to Rs 285. Credit Suisse has set the target price for the stock at Rs 310 from Rs 400 and downgraded it to neutral from outperform.
Finance Minister Arun Jaitley on Monday said the GST Council had hiked cess on cigarettes to take away the "windfall " manufacturers were reaping due to an anomaly that crept in after the GST rate fixation. The anomaly refers to the difference in the pre-GST tax and post-GST incidence. While the peak Goods and Service Tax (GST) rate of 28 per cent stays and so does 5 per cent ad valorem cess on top of it, the fixed cess has been hiked between Rs 485 and 792 per thousand sticks.
The GST Council had in May fixed 28 per cent as the top rate for cigarettes. A 5 per cent ad valorem cess was levied on top of it and Rs 1,591 per thousand sticks as fixed cess on both filter and non-filter cigarettes of not exceeding 65 mm length. The cess rate varied from Rs 2,126 to Rs 4,170 for cigarettes of different lengths.
But this rate was lower than the pre-GST tax incidence and the choice before manufacturers was either to pass on the lower taxes to consumers by way of cutting rates or pocketing the windfall. The manufacturers chose the latter.
Jaitley said to correct this, the GST Council has raised the fixed cess by Rs 485 to 792 per thousand sticks.