Indian tobacco stocks started 2026 with a massive sell-off today, January 1, after the Finance Ministry notified a significant hike in excise duties on cigarettes and a new health cess on pan masala. Market leader ITC and Godfrey Phillips saw their sharpest intraday declines in years, dragging down the Nifty FMCG index.
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The new tax structure, effective from February 1, 2026, aims to bridge the gap toward the WHO’s recommended 75% tax burden on tobacco products.
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1. Market Reaction: The “Sin Stock” Slump
The announcement triggered panic selling across the tobacco sector during the first trading session of the year.
| Company | Share Price (Jan 1) | % Change | Impact Level |
| ITC Ltd | ₹365.50 | -9.2% | Lowest since April 2023 |
| Godfrey Phillips | ₹2,295.00 | -14.1% | Steepest fall since Nov 2016 |
| VST Industries | ₹2,580.00 | +1.1% | Mixed (Largely unaffected) |
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The ITC Factor: Beyond the tax news, ITC’s stock was further pressured by a massive block deal involving approximately 4.03 crore shares (0.31% equity).
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2. The New Tax Structure (Effective Feb 1)
The government is replacing the existing GST Compensation Cess with a more rigid Additional Excise Duty and a Health & National Security Cess.
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Excise Duty: Ranges from ₹2,050 to ₹8,500 per 1,000 sticks, depending on the length of the cigarette.
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GST Rate: Remains fixed at 40% for cigarettes and pan masala, while Beedis will be taxed at 18%.
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Total Tax Burden: Analysts estimate the effective tax on retail prices will jump from 53% to roughly 62-65% for premium sticks.
3. Impact on Smokers: What to Expect
Manufacturers are expected to pass these costs directly to consumers starting in February.
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Premium Cigarettes (75mm+): This segment (which makes up 16% of ITC’s volume) faces the steepest hike.
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Price Increase: Analysts predict a hike of ₹2 to ₹3 per stick for premium brands like Gold Flake Kings and Marlboro.
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Overall Cost Rise: Overall production costs for the 75-85mm segment are projected to rise by 22-28%.
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