ITC share price: Cigarette maker's stock comes within Rs 10 of record high as Centre caps maximum GST cess on tobacco

ITC share price, VST Industries share price: ITC and VST Industries shares rose on Monday after the government capped the maximum rate of GST compensation cess on tobacco products. The stock of ITC — a part of headline baskets Sensex and Nifty50 — ended 0.4 per cent higher at Rs 380.2 apiece on BSE, having risen to as high as Rs 384.5 apiece during the session to come within Rs 9.6 of a record high scaled late last month. 

VST Industries shares gained 0.4 per cent to settle at Rs 3,117.9 apiece on the bourse.

Will the government move impact cigarette and tobacco prices?

According to Zee Business research, the changes in GST cess compensation is positive for ITC and VST Industries. The move can aid the volumes of the two companies as the tax will be applied to retail price instead of ad valorem-assessed price or the price at which factory sells goods to distributors. The government will be able to track leaks and the sale of legal cigarette will increase. 

There will not be any direct impact on final prices, according to the research. 

What analysts say

Sandeep Jain, Director at Tradeswift Broking, suggests investors to buy VST Industries shares at the current market price.

The GST cess news is positive for the company, he told Zee Business. 

Motilal Oswal has a 'buy' call on ITC with a target price of Rs 450 apiece. According to the brokerage, ITC is better placed owing to its judicious pricing action. 

How will the cess rate be applied?

The government has announced to cap the maximum rate of GST compensation cess that would be levied on pan masala, cigarettes and other forms of tobacco, and linked the highest rate to their retail sale price.

The capping of the cess rate was brought in as part of the amendments to the Finance Bill, 2023, passed by the Lok Sabha on Friday.

According to the amendment, the maximum GST compensation cess rate for pan masala will be 51 per cent of the retail sale price per unit. In the current regime, the cess is charged at 135 per cent ad valorem.

The rate for tobacco has been fixed at Rs 4,170 per thousand sticks plus 290 per cent ad valorem or 100 per cent of the retail sale price per unit.

So far, the highest rate was Rs 4,170 per thousand sticks plus 290 per cent ad valorem.

The cess is levied over and above the highest GST rate of 28 per cent. The changes in Schedule I of the GST compensation cess Act, brought in via amendment in the Finance Bill, have capped the maximum cess that can be charged on pan masala and tobacco products.

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