ITC Plunges Most in Over Two Years on Higher Cigarette Tax Shock
A cigarette vendor sells a package of cigarettes at shop in New Delhi, India. (Photographer: Sanjit Das/Bloomberg News)  

ITC Plunges Most in Over Two Years on Higher Cigarette Tax Shock

(Bloomberg) -- ITC Ltd. plummeted the most since July 2017 after India’s Finance Minister Nirmala Sitharaman proposed higher levies on cigarettes and other tobacco products.

“I propose to raise excise duty, by way of National Calamity Contingent Duty,” Sitharaman said in the budget speech, without specifying the extent of the hike. Higher taxes on so-called sin goods will help the Indian government bolster its exchequer and bridge a widening fiscal deficit.

Shares of India’s largest cigarette maker fell 6.9% to 219 rupees a piece during Mumbai trading on Saturday. Rival Godfrey Phillips India Ltd., maker of Red & White and Four Square cigarette brands, also slipped 6.5% after the announcement outstripping the 2.4% decline in the benchmark S&P BSE Sensex.

ITC Plunges Most in Over Two Years on Higher Cigarette Tax Shock

The government, however, hasn’t tweaked the duty rates of ‘bidis’ -- a local hand-rolled version of leaf-wrapped tobacco that is a big employment provider among low wage earners.

“The government is taxing the sin goods in the hands of those who can afford to pay the higher price,” Anil Talreja, partner at Deloitte India said over phone. “In my view, this would have a significant impact.”

Although ITC has been on an aggressive diversification drive and entering fast moving consumer goods ranging from instant noodles to incense sticks, cigarettes still contribute the largest chunk to its revenues. In the year ended March 2019, the segment accounted for as much as 46.4% of ITC’s annual revenues down from 66% in 2010, according to the data compiled by Bloomberg.

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