Cigarettes to cost more as GST Council okays higher cess rates

Paterniano Del Favero
Luglio 18, 2017

GST impact on cigarettes: Union Finance Ministry Arun Jaitley on Monday announced that GST Council has chose to hike cess on cigarettes to take away the windfall manufacturers were making. Finance minister Arun Jaitley, who briefed reporters after the GST Council meeting held via videoconferencing, said the increase in cigarette cess will benefit the exchequer by about Rs5,000 crore a year.

Rs 485-792 per thousand sticks.

"Each state specifically responded positively (to the proposal) and this change will be effected from midnight (of Tuesday)", said Jaitley. So they probably would have resorted to the other option of transferring this windfall profits to their balance sheet. He said the GST Council noticed this "lacunae" and convened an early meeting and a unanimous decision was taken after taking views of all states.

However, cigarette manufacturing companies are yet to revise prices post GST.

Vishal Raheja, senior consultant, Taxmann, a tax services provider, said the increase in cess will push up prices of cigarettes considerably.

According to Morgan Stanley, which increased target price on the stock to Rs 395 from Rs 310, the key risk would be sharp increase in cigarette tax in the next Budget (likely February 2018).

Over 65 mm but less than 70 mm: The price will increase by Rs 0.792 per cigarette. Filter cigarettes of 65 to 70 mm length would now attract a 5 per cent plus Rs 2,747 per thousand stick cess as compared to present 5 per cent plus Rs 2,126.

Length up to 65-70 mm: Increase of Rs 0.621 per cigarette. From this it comfortably looks like that the original number of applicants which included duplication... which was 80 lakh, I think we are nearly on the verge of crossing that figure. "The central and state governments are addressing the queries being raised", said Jaitley.

"The agenda is some rate issue", she said.

Sources said cigarettes were the only item of discussion in Monday's GST Council meeting which reviewed the roll out.

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