ITC shares in focus on gst -weaks in cigarettes, other tobacco products

Shares of ITC LTD, one of the largest cigarette manufacturers in India, will be in Focus on Thursday 4 September, after the GST Council had clarified that the current 28% GST Plus compensation structure on tobacco products will continue until compensation-related loans will be fully refunded. After that, a revised 40% GST plate is introduced based on the selling price for Retail (RSP).

As part of the GST 2.0 route map, sin products such as cigarettes, Bidis, Pan Masala, Gutkha and other tobacco products rolled out in the 56th meeting of the Council, explicitly kept outside the rationalization of the rate with a lot of FMCG and car items to reduce the tax brackets.

The shift to a RSP -based valuation model, from the current transaction value model (which manufacturers such as ITC benefit) is aimed at connecting valuation leaks and guaranteeing the entire tax provision. The effective implementation of the 40% GST plate will only take place after the outstanding loans with CESS-related loans have been regulated.

Currently the tax on cigarettes includes 28% GST plus compensation -stop, which is a mix of Ad Valorem and specific tasks. This stop will be phased out in the future regime. However, there remains ambiguity about the continuation of the National Calamity Contingent Duty (NCCD)-a non-GST tax.

According to the global brokerage company Jefferies, even if NCCD continues at the current level, the total tax incidence on cigarettes could fall by approximately 5% as soon as the 40% RSP is implemented and the compensation determination is withdrawn. In such a scenario, the exhibition of the tobacco industry expects that price reductions, in particular for value-free cigarettes, consider to combat illegal trade and to recapture market share lost to non-regulated players.

“Although the short -term structure remains unchanged, the clarity about timelines and the intention of the government to impose alternative levies, if present, will be crucial in assessing the sustainability of this exemption,” noted analysts. “ITC could possibly benefit from a tax reception of 40% (probably through the year) positive for ITC,” Jefferies said in his note.Also read: Is your share portfolio ready for GST 2.0? Council meeting can rewrite the market book of the market

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