Sources told CNBC-TV18 on Monday, December 2, that the Group of Ministers (GoM) is likely to propose a new “special rate” of 35% on tobacco & tobacco products and aerated beverages.
There are key aspects to track when it comes to ITC. A major factor is whether this potential rate increase is over and above the compensation cess or in lieu of it.
Here are three important scenarios to track when it comes to ITC and cigarette taxation:
Scenario #1
In case this 35% special rate is over and above the cess, it could mean an increase between 5% to 12% in tax incidence for ITC.
Scenario #2
In case this special rate is in lieu of the Ad-Valorem portion of the cess, it is largely rate neutral.
Scenario #3
If this 35% special rate is in lieu of the entire portion of the cess, it will reduce overall tax incidence for ITC by nearly 20%.
Brokerage firm Macquarie wrote in a note that currently, cigarettes attract a 28% GST rate and a compensation cess of 5% to 36% based on length of cigarette with the longest cigarette attracting a 36% compensation cess and others a 5% cess.
Macquarie said that if the said levy is over and above the existing compensation cess, ITC will need at least a single-digit price hike to offset this increase in taxes.
Out of the 38 analysts that have coverage on ITC, 33 of them have a “buy” rating on the stock, three have a “hold” rating and two of them have a “sell” rating.
Shares of ITC have opened 2.5% lower on Tuesday at ₹466. The stock is down 11% from its recent peak of ₹528.
