The government's steep increase in tobacco taxes has begun significantly impacting India's leading cigarette manufacturers in the first quarter of FY27. ITC, Godfrey Phillips India, and VST Industries reported declines in net revenue, volumes and profitability during the April-June quarter, marking the first full quarter after the revised tax regime came into effect. According to Business Standard, these three companies together account for more than 90 per cent of the domestic cigarette market, which has an estimated annual volume of over 100-120 billion sticks. The tax hikes have created a stark contrast between reported revenues that surged due to duty pass-through and underlying business performance that came under pressure.
The Union government has informed Parliament that it does not have any assessment on whether higher taxation on tobacco and tobacco products has adversely affected the incomes of tobacco farmers. According to reports from Business Standard, the Ministry of Commerce and Industry stated in a starred question reply in the Lok Sabha that 'no such assessment is available with the department' regarding the direct correlation between higher taxation and adverse impact on farmer incomes.
ITC's revenue from the cigarettes business grew 73.71 per cent to ₹16,596.67 crore in Q1FY27, from ₹9,553.86 crore a year earlier, primarily due to its "staggered pricing approach amidst unprecedented increase in tax." However, the company's gross revenue from the cigarettes segment actually fell 31.45 per cent to ₹3,769.11 crore, from ₹5,498.93 crore in the year-ago quarter, indicating a significant hit on underlying sales volumes. ITC, which controls over three-fourths of the domestic cigarette market, attributed the performance to its "strategic and calibrated response by the Cigarettes Business to the unprecedented increase in tax, balancing the interests of all stakeholders."
Godfrey Phillips India reported a 44.3 per cent decline in consolidated net profit to ₹198.39 crore for the June quarter, with revenue from operations nearly doubling to ₹3,819.56 crore largely due to ₹2,614 crore in excise duty paid during the quarter. Excluding excise, the company's net revenue fell 18.8 per cent to ₹1,206 crore. VST Industries' profit after tax fell 24.42 per cent to ₹42.42 crore, from ₹56.13 crore in Q1FY26, despite revenue nearly doubling to ₹881.49 crore from ₹424.93 crore. The company's cigarette volume was down 14 per cent to 611 million sticks from 714 million in the corresponding period last year.
The government introduced a new excise duty regime on tobacco products effective February 1, 2026, replacing the earlier compensation cess framework. As reported by Business Standard, cigarettes now attract excise duty ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length, in addition to the existing GST. The revised structure includes additional duties of about ₹2.05 per stick for short non-filter cigarettes and ₹2.10 per stick for short filter cigarettes of up to 65mm length. Following implementation, cigarette prices were immediately increased by about ₹22-25 per pack of 10 sticks across several categories, prompting manufacturers to undertake calibrated price hikes and portfolio adjustments.
