The BSE Sensex and Nifty fell on Tuesday as shares of cigarette maker ITC plunged nearly 15 per cent after the GST Council yesterday decided to hike compensation cess on cigarettes. The Sensex tumbled as much as 450 points while the Nifty briefly fell below the 9,800 mark to 9,792.05. Meanwhile, a lower opening in other Asian shares also impacted sentiments.
Losses in the market were led by ITC, which has the second highest weightage (7.65 per cent) in Nifty after HDFC Bank (9.30 per cent), as it fell as much as 15 per cent after the GST Council on Monday raised the compensation cess rates on cigarettes in view of the reduction in tax on the demerit good under the new indirect tax regime – GST.
Cigarettes have been kept in the highest GST slab of 28 per cent in line with the weighted average VAT rate of 28.7 per cent in the earlier regime.
“In the first 15 days of GST implementation, it was noted that 28 per cent tax plus compensation cess on cigarettes, when translated, had not factored in the impact of cascading effect, resulting in windfall gains for cigarette companies,” Finance Minister Arun Jaitley said.
The compensation cess on cigarettes consists of two components — an ad valorem tax of 5 per cent and a numerical amount on each category of filter and non-filter varieties.
While the ad valorem remained the same, the numerical amount depending on the length of cigarettes was increased here on Monday by the Council.
For non-filter 65 mm cigarettes, the numerical cess has been raised to Rs. 2,076 per 1,000 units; for non-filter 65-70 mm cigarettes it is Rs. 3,668 per 1,000 units.
For filter category, 65 mm cigarettes will be charged Rs. 2,076 per 1,000 units, 65-70 mm will be charged Rs. 2,747 per 1,000 units and 70-75 mm will be charged Rs. 3,668 per 1,000 units.
For other filter cigarettes the ad valorem has been increased to 36 per cent plus Rs. 4,170 per 1,000 units.
The new tax rates came into effect from Monday midnight, Mr Jaitley said.
Shares of other cigarette makers like Godfrey Phillips India and VST Industries also fell as much as 10.35 per cent and 8.3 per cent respectively.
The Sensex was down 189 points at 31,885.44 while the Nifty traded 38.45 points lower at 9,877.50 as of 9.40 am. The FMCG sub-index of NSE was down 6.14 per cent.
Among Nifty stocks, ITC was the top loser, down 11.88 per cent followed by Gail India, Reliance Industries, Aurobindo Pharma and IndusInd Bank, which fell between 0.6 per cent to 1.8 per cent.
Meanwhile, Bharti Airtel was the top gainer in Nifty, up 2.3 per cent followed by TCS, Infosys, ACC and Wipro, which rose between 1.3 per cent to 1.75 per cent.
Elsewhere, Asian shares traded lower. The Nikkei was down 0.61 per cent, Shanghai Composite fell 0.62 per cent while Hang Seng shed 0.09 per cent.
Overnight, US shares ended flat. The Dow Jones Industrial Average fell 8.02 points, or 0.04 percent, to 21,629.72, the S&P 500 lost 0.13 points, or 0.01 percent, to 2,459.14 and the Nasdaq Composite added 1.97 points, or 0.03 percent, to 6,314.43.