Shares of cigarette manufacturers extended their decline for a second consecutive session on Friday after the Centre announced a sharp increase in excise duty on cigarettes, triggering concerns over demand disruption and profitability across the sector.

Continuing its losing streak, ITC, Godfrey Phillips India, VST Industries, NTC Industries, Golden Tobacco, and Indian Wood Products shares fell up to 5% in the first hour of trade so far. The sell-off follows steep losses on Thursday, when these stocks had dropped as much as 18% intraday after the finance ministry issued a notification revising excise duties on cigarettes, effective February 1.

Under the new structure, excise duty has been raised sharply to a range of ₹2,050 to ₹8,500 per 1,000 cigarette sticks, depending on length and category. This marks a dramatic increase from the earlier basic excise duty (BED), which stood at a token ₹5 per 1,000 sticks for most categories and ₹10 per 1,000 sticks for cigarettes longer than 75 mm. In addition, a new GST slab of 40% will apply to cigarettes from February 1.

Reacting to the announcement, ITC shares fell as much 5.1% to hit a 52-week low of ₹345.35 on the BSE, while its market capitalisation dropped to ₹4.37 lakh crore. In the previous session, the FMCG-to-cigarettes conglomerate ended nearly 10% lower.

In a similar trend, Godfrey Phillips India plunged over 4.6% to ₹2,184.60, after crashing 17% in the previous session.

Meanwhile, VST Industries, Indian Wood Products, and Golden Tobacco shares fell up to 1% as investors reassessed earnings outlooks amid the steep tax hike.

Bucking the trend, NTC Industries shares rebounded over 4%, paring early losses.  

In a statement, the finance ministry said the BED on cigarettes had remained unchanged since the introduction of GST in 2017, an unprecedented seven-year stagnation in India’s tobacco taxation history. As a result, the excise component per cigarette had become negligible, undermining its role as a public health and revenue tool.

The ministry noted that prior to GST, excise duty on cigarettes ranged from ₹1,585 to ₹2,850 per 100 sticks for non-filter cigarettes and ₹1,585 to ₹4,170 per 100 sticks for filter cigarettes. These rates were periodically revised to account for inflation, income growth and rising healthcare costs, aligning India’s tax framework with global tobacco-control norms.

TII criticises the move

The Tobacco Institute of India (TII) has strongly criticised the move, calling the increase “unprecedented” and contrary to the government’s earlier assurances that the GST transition would be revenue neutral. “Such a massive increase will cause immense hardship and loss to millions of farmers, MSMEs, retailers and local value chains nurtured by the Industry, besides providing a huge fillip to Illicit Industry and damaging national enterprises,” the industry body said in a statement.

According to TII, for every three legal cigarettes sold in India, one is already smuggled or illicit. It cautioned that higher taxes would further expand the illegal market, depriving the exchequer of revenue and encouraging anti-social activities. Legal cigarettes, which account for just 10% of tobacco consumption, already contribute nearly 80% of tobacco tax revenue, the institute said, citing WHO data.

TII urged the government to review the calculations behind the duty hike and reconsider its scale, warning that the move could have crippling consequences for over four crore livelihoods linked to the tobacco value chain while weakening legitimate Indian enterprises.

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