Tobacco Stocks Crash: Godfrey Phillips Shares Plunge Over 15%, ITC Falls 9% After Govt Notifies New Excise Duty From Feb 1

Tobacco stocks witnessed a sharp sell-off on January 1, 2026, after the Central Government officially notified February 1, 2026 as the implementation date for additional excise duty on tobacco products and a new Health and National Security Cess on pan masala.

Major cigarette and tobacco companies such as Godfrey Phillips India, ITC, and VST Industries came under heavy pressure as investors reacted to fears of higher product prices and margin compression.

Tobacco Stocks Today: Heavy Losses Across the Board

On Thursday’s trading session, tobacco sector stocks plunged sharply on the NSE:

• Godfrey Phillips India shares crashed nearly 17%, hitting an intraday low of ₹2,335.30
• ITC shares tanked over 9%, touching ₹365.10
• VST Industries declined more than 3%, trading around ₹249.40

The sharp fall reflects investor concern that higher taxes on cigarettes, tobacco, and pan masala could significantly impact demand and profitability.

Why Are Tobacco Shares Falling Today?

The sell-off comes after the government announced that additional excise duty on tobacco products and a new cess on pan masala will come into effect from February 1, 2026, replacing the existing GST compensation cess.

Key reasons behind the market reaction:

• Likely increase in cigarette and tobacco prices
• Possible decline in consumption volumes
• Pressure on operating margins of tobacco companies
• Uncertainty around long-term demand outlook

New Tax Structure on Tobacco & Pan Masala Explained

According to the government notification:

GST Rates (Effective Feb 1, 2026)

• Cigarettes, tobacco, pan masala & similar products: 40% GST
• Biris: 18% GST

Additional Levies

• Health and National Security Cess on pan masala
• Additional excise duty on tobacco and cigarette products

These new levies will be over and above GST and will fully replace the existing GST compensation cess, which will cease from February 1.

What Did the Government Decide in December 2025?

In December 2025, Finance Minister Nirmala Sitharaman introduced two key Bills in Parliament:

Central Excise (Amendment) Bill, 2025

• Allows the government to impose excise duty on all tobacco products
• Proposed excise duty of ₹5,000–₹11,000 per 1,000 cigarette sticks
• 60–70% duty on unmanufactured tobacco
• 100% duty on nicotine and inhalation products

Health and National Security Cess Bill, 2025

• Introduces a new cess on pan masala manufacturing
• Aims to replace the GST compensation cess

Both Bills were approved by Parliament and officially notified on January 1, 2026.

Impact on Cigarette & Tobacco Industry

Currently, tobacco products attract:

• 28% GST
• Compensation cess (varied rates)

From February 1:

• 40% GST + excise duty on tobacco
• 40% GST + Health & National Security Cess on pan masala

This sharp increase in taxation could lead to:

• Higher retail prices
• Lower consumption
• Increased illicit trade risks
• Short-term volatility in tobacco stocks

Market Outlook: What Should Investors Watch?

While tobacco stocks like ITC and Godfrey Phillips have historically shown resilience due to pricing power, the new tax regime introduces fresh uncertainty.

Investors will closely monitor:

• Price hikes by companies
• Volume impact in coming quarters
• Margin protection strategies

• Government’s long-term policy stance on sin goods