With only 6% hike in excise duty, ITC cheers Budget 2017
Tax increase is lowest over the past six years but inclusion of sin tax in GST regime a key overhang
 "A man talks on his mobile phone as he walks past an ITC office building in Kolkata")
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A man talks on his mobile phone as he walks past an ITC office building in Kolkata
The Budget has provided multiple reasons of cheer for ITC. Prior to the Budget announcement, the ITC scrip was expecting an 8-10 per cent increase in duties on cigarettes. The actual hike has come in much lower at 6 per cent (including additional duties).
The tax rates on tobacco, pan bidis, etc has also been increased in the Budget meaningfully. For instance, the duty on pan masala has been hiked by 300 basis points to 9 per cent and that on unmanufactured tobacco has been hiked by 410 basis points or nearly doubled to 8.3 per cent. This is also positive for ITC as it will create a level playing field between the cigarette players and these unorganised players and also aid migration of consumers towards cigarettes.
"Increase in excise duty of Paper rolled bidis from Rs 21 per 1,000 bidis to Rs 78 per 1,000 bidis and Handmade Paper rolled bidis from Rs 21 per thousand bidis to Rs 28 per thousand bidis addresses a long term concern of ITC that only 'cigarette manufacturers bear majority of taxation of the tobacco industry'," says an analyst at Spark Capital. We believe tax rates are adjusted with a view to converge them to a common GST rate, he adds.
Most analysts believe that ITC can comfortably pass on the 6 per cent increase in excise duty to the end consumers without hurting volumes meaningfully. It is not surprising in this scenario that the ITC stock made a new 52-week high of Rs 269 a piece on Wednesday.
The tax rates on tobacco, pan bidis, etc has also been increased in the Budget meaningfully. For instance, the duty on pan masala has been hiked by 300 basis points to 9 per cent and that on unmanufactured tobacco has been hiked by 410 basis points or nearly doubled to 8.3 per cent. This is also positive for ITC as it will create a level playing field between the cigarette players and these unorganised players and also aid migration of consumers towards cigarettes.
"Increase in excise duty of Paper rolled bidis from Rs 21 per 1,000 bidis to Rs 78 per 1,000 bidis and Handmade Paper rolled bidis from Rs 21 per thousand bidis to Rs 28 per thousand bidis addresses a long term concern of ITC that only 'cigarette manufacturers bear majority of taxation of the tobacco industry'," says an analyst at Spark Capital. We believe tax rates are adjusted with a view to converge them to a common GST rate, he adds.
Most analysts believe that ITC can comfortably pass on the 6 per cent increase in excise duty to the end consumers without hurting volumes meaningfully. It is not surprising in this scenario that the ITC stock made a new 52-week high of Rs 269 a piece on Wednesday.