Godfrey Phillips, ITC, VST Industries rise up to 5% despite 40% GST proposal on sin goods

Shares of cigarette makers gained on Thursday even as the Goods and Services Tax (GST) Council approved a proposal to levy 40 per cent GST on sin and super luxury goods.

Godfrey Phillips India Ltd rose 5.14 per cent to hit a day high of Rs 10,721.25. ITC Ltd climbed 3.45 per cent to Rs 425.70, while VST Industries Ltd advanced 2.04 per cent to touch Rs 274.65.

Union Finance Minister Nirmala Sitharaman, after the 56th GST Council meeting, said that a special rate of 40 per cent has been proposed and cleared, which will apply only to paan masala, cigarettes, gutka and other tobacco products such as chewing tobacco, zarda, unmanufactured tobacco and beedi.

The Council also cleared a restructuring of the GST framework, reducing the existing four slabs to two. The 12 per cent and 28 per cent rates were scrapped, while the 5 per cent and 18 per cent slabs were retained.

The new GST regime, except for tobacco products and cigarettes, will take effect from September 22. Currently, tobacco products are taxed at 28 per cent GST plus cess. They will continue to operate under this system -- along with the cess -- until the government repays the borrowings made during the pandemic years to compensate states for revenue shortfall.

Commenting on the development, Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said, "Sin goods typically have relatively inelastic demand, meaning changes in price do not significantly alter consumption patterns. Even if prices rise due to higher GST, demand is unlikely to see a major decline. This helps explain the resilience of these stocks despite the proposal for increased taxation."

Godfrey Phillips' cigarette brands include Four Square, Red & White, Cavanders, Stellar, Focus and Originals International. ITC sells Gold Flake, Classic, Navy Cut, Insignia, India Kings and Scissors, while VST Industries' portfolio includes Charminar, Total, Charms, Editions, Special, Moments and Qila.