India adjusts cigarette taxes, tobacco stocks under pressure, hitting a six-month low

India’s Ministry of Finance announced new excise tax regulations on Wednesday, implementing a tiered tax system for cigarettes starting February 1. The tax ranges from 2,050 to 8,500 rupees per thousand sticks, depending on cigarette length, roughly equivalent to $22.82–$94.60. This move triggered a sharp market reaction, with the tobacco sector declining accordingly.

Listed Company Stock Prices Under Pressure

As the producer of Gold Flake cigarettes and a leading player in India’s tobacco industry, ITC’s stock price plummeted 4.4% on Thursday, closing at 385.25 rupees, marking the lowest level since June 2024. The single-day decline is also likely to be the worst performance since February 2022. Meanwhile, Gfeller Phillips India, the distributor of Marlboro in India, fell even more sharply, down 7.7%.

In the Nifty 50 index, ITC was the biggest loser of the day and also led the decline in the entire FMCG consumer index, which fell 1.6% overall.

Rising Cost Pressure for Cigarettes

According to ICICI Securities’ analysis team, the new tax regime will increase the overall burden for 75-85mm cigarettes by 22%-28%. Analysts pointed out that cigarettes longer than 75mm account for about 16% of ITC’s sales, and the new tax will raise the price per cigarette by 2–3 rupees.

This excise tax will be levied on top of the existing 40% Goods and Services Tax (GST), meaning the final retail price pressure could be even more significant.

Policy Background and Market Impact

This tax reform was implemented after the government approved the “2025 Central Excise (Amendment) Act” in December 2024. The act replaces the previous temporary taxation arrangements on cigarettes and tobacco products with a new regular tax system.

The government views tobacco-related health issues as a significant drain on public resources and has implemented measures including enhanced warning labels and periodic tax hikes. The introduction of the new tax will inevitably increase the smoking costs for approximately 100 million Indian smokers, potentially suppressing tobacco consumption while putting pressure on the profit margins of listed companies.

Analysts believe that companies may be forced to pass on costs through price increases, but the risk of declining consumer demand also warrants attention.