The Cigarette stocks plunged sharply in morning trade after the government imposed a new tax on cigarettes, making them costlier for an estimated 100 million smokers in the world’s most populous country. A key cigarette maker and a market leader, ITC’s share price nosedived by over 4% in early trade. Godfrey Phillips India, the distributor of Marlboro in the country, declined by over 8%.
The Finance Ministry has notified Rs 2,050–8,500 excise duty per 1,000 sticks, depending on cigarette length, effective February 1. The move marks the return of a permanent excise framework for cigarettes, replacing the temporary levy that had been in place over the past few years. The new tax will apply in addition to the existing 40% Goods and Services Tax, the order showed.
Implication of the excise duty on cigarette companies
The impact of the duty on the margins of the cigarette manufacturers is spooking investors and led to a sharp fall in the share prices. As per ICICI Securities analyst quoted by Reuters, “The duty translates into a 22%-28% increase in overall costs for 75-85 mm cigarettes.”
Reuters quoted them saying that “Cigarettes longer than 75 mm account for roughly 16% of ITC’s volumes and are likely to see price increases of 2–3 rupees per stick as a result of the levy.”
The announcement follows the government’s approval in December of the Central Excise (Amendment) Bill 2025, which replaces a temporary levy on cigarettes and tobacco products.
Is another price hike likely?
Though there is no clear directive, many analysts believe that the higher taxes may lead to a price rise by the cigarette manufacturers. The government estimates India to have 10 crore smokers.
With the excise duty coming back into force, cigarettes will be subject to multiple layers of taxation. These include a 28% GST, a compensation cess and a value-based levy linked to cigarette size, in addition to the newly notified excise duty.
Even so, total taxes on cigarettes in India currently account for about 53% of the retail price, significantly lower than the World Health Organisation’s recommended benchmark of 75% aimed at discouraging tobacco consumption.
Law replaces temporary levy
In December, Parliament approved the Central Excise (Amendment) Bill, 2025, which provides the legal backing for the fresh excise duty regime. The legislation replaces the ad-hoc system under which cigarettes and other tobacco products were taxed through temporary levies.
The government has maintained that a stable excise structure is necessary to ensure predictability in revenue collections from tobacco, while aligning taxation with public health objectives.
