Reports that the government may raise the Goods and Services Tax (GST) on cigarettes, tobacco, and aerated drinks caused shares of cigarette company ITC and aerated drink business Varun Beverages to drop up to 5% on the BSE during Tuesday’s intraday trading in an otherwise bullish market.
In intraday trading, Varun Beverages’ shares fell 5% to Rs 600 due to high volume. ITC’s intraday trading today saw a 3% decline at Rs 462.80. From their respective record highs of Rs 528.55 and Rs 682.84, which were reached on September 27, 2024, and July 29, respectively, shares of ITC and Varun Beverages have corrected by up to 12%. Godfrey Phillips was down 1.5% at Rs 5,669 after plunging to an intraday low of Rs 5,576.
According to reports cited by the Business Standard, the Group of Ministers (GoM) on GST rate rationalization, which is chaired by Bihar Deputy Chief Minister Samrat Chaudhary, suggested a new tax slab of 35% for tobacco, tobacco products, and aerated beverages on Monday. These goods are now subject to a 28% tax.
In the meantime, Varun Beverages’ stock price has soared 424 per cent over the last three years, while ITC’s has soared 110 per cent. By contrast, the BSE Sensex has increased by 39% over the same time frame.
One of the biggest PepsiCo franchisees outside of the United States and a major force in the beverage sector is Varun Beverages. The company manufactures and sells a variety of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including packaged drinking water marketed under PepsiCo trademarks.
Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda, and Evervess are among the PepsiCo CSD brands that Varun Beverages manufactures and markets. Slice, Tropicana Juices (100 cents and Delight), Seven-Up Nimbooz, Gatorade, and bottled drinking water under the Aquafina name are among the PepsiCo NCB products that the company manufactures and markets.
ITC has outperformed in recent years because, since the introduction of the GST, the company’s growth prospects have improved as a result of a stable tax system.
According to the ITC’s FY24 annual report, cigarette taxes in India are several times more than those in industrialized nations, such as the United States at 14 times, Japan at 7 times, Germany at 6 times, and so on. Furthermore, compared to tneighbouringng countries, it is also significantly greater.
Steep tax hikes have historicalhurt on both tax collections and the volume of legal cigarettes sold, whereas constant taxation has resulted in consistent tax receipts. The Exchequer is thought to lose about Rs 21,000 crore in income each year as a result of illicit commerce. According to ITC, farmers and farm workers involved in the tobacco value chain are negatively impacted by the illegal cigarette trade.
