Indian tobacco stocks fall after government imposes new tax on cigarettes

Shares of Indian tobacco companies fell on Thursday after the government imposed a new tax on cigarettes, making them costlier for an estimated 100 million smokers in the world’s most populous country.

ITC, the maker of Gold Flake and the market leader in the cigarette segment, fell 4.4 per cent, while Godfrey Phillips India, which distributes Marlboro in the country, declined 7.7 per cent.

Shares of ITC were trading at Rs 385.25, their lowest level since June 2024, and were on track for their worst session since February 2022.

ITC was the biggest loser on the Nifty 50 index and also led declines on the FMCG index, which was trading 1.6 per cent lower.

The finance ministry late on Wednesday notified an excise duty of Rs 2,050–8,500 ($22.82–$94.60) per 1,000 sticks, depending on cigarette length, effective February 1.

Health issues linked to smoking are seen as a major drain on India’s resources, and the government has introduced several measures to curb consumption, including larger warning labels and periodic tax adjustments.

The duty translates into a 22 per cent to 28 per cent increase in overall costs for 75–85 mm cigarettes, analysts at ICICI Securities said.

“Cigarettes longer than 75 mm account for roughly 16 per cent of ITC’s volumes and are likely to see price increases of Rs 2–3 per stick as a result of the levy,” the analysts said.

The new tax will apply in addition to the existing 40 per cent Goods and Services Tax, the government order showed.

The announcement follows the government’s approval in December of the Central Excise (Amendment) Bill 2025, which replaces a temporary levy on cigarettes and tobacco products.

While the government has not specified the impact of the duty change on retail prices, analysts said higher taxes could prompt companies to raise prices.