The goods and services tax (GST) Council raised the cess on cigarettes Monday to address an anomaly under the new regime that had resulted in lower tax incidence than before. The move will raise the prices of cigarettes that had fallen under the GST regime, which rolled out July 1.
Cigarette maker ITC had been the biggest gainer from the anomaly with its stock rising nearly 10% from end-June levels, more than double the rise in the broader market over this period. An ITC spokesperson said the company was studying the details of the move.
The increase in cess ranges from `485 per 1,000 sticks for filter cigarettes of up to 65 mm length to `792 per 1,000 sticks for those of 70-75 mm. In the case of other filter cigarettes, the tariff will rise by 31%. The new rates took effect at midnight.
Finance minister Arun Jaitley said the anomaly would have cost the government Rs 5,000 crore in tax and benefited companies in the sector.
The weighted average value added tax (VAT) rate on cigarettes was 28.7% and in line with that, GST was kept at 28%. In addition, compensation cess was to be levied at 1.05 times the specific rate, or 5% extra, the specific excuse duty rates.