Shares of ITC were sliding on Wednesday after a government committee reportedly rejected a proposal to lower a tax on tobacco.
What Happened: The goods and services tax (GST) council’s fitment committee has reportedly dismissed a proposal to review the compensation cess on tobacco products, sources familiar with the matter told CNBC-TV18.
The tobacco industry had presented a request for various options, including a “uniform additional compensation cess on cigarettes, compensation cess on bidis, additional compensation cess on smokeless tobacco products or reduced compensation cess on cigarette sticks measuring up to 70 mm,” sources told the daily.
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Following a detailed discussion on the matter, the fitment committee has reportedly decided to maintain the existing framework, rejecting the proposed changes. The compensation cess is used to compensate states for any revenue loss due to the implementation of GST.
Why It Matters: Currently, tobacco products, such as cigarettes, chewing tobacco and gutkha, are subject to GST, compensation cess, basic excise duty, and national calamity contingent duty (NCCD). Bidis, on the other hand, attract GST, basic excise duty, and NCCD but are not subject to compensation cess.
Presently, the compensation cess on tobacco products with printed maximum retail prices (MRPs) is linked to the retail rate and varies from 8% to 69%.
In the Union Budget for 2023-24, the national calamity contingent duty (NCCD) rate for specific cigarettes was raised by around 16%, effective from February 2, leading to concerns in the tobacco industry is concerned that recent tax adjustments have pushed tax rates to new highs.
Price Action: ITC’s share price was down 0.63% to trade at ₹437.00 in late afternoon trade on Wednesday, recouping some losses after dipping below 1%.
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