ITC flops as M'rashtra to charge 12.5% VAT on cigarettes

Cigarette major ITC lost 2.4% to Rs 145.60, after the Maharashtra Government decided to levy 12.5% VAT on cigarettes.

Maharashtra levied 12.5% value added tax on cigarettes in the state budget for 2007-08, which was presented on Thursday. It became the third state after West Bengal and Bihar, to propose value added tax (VAT). In the state budget for 2007-08, the West Bengal government last week (16 March) decided to impose 12.5% VAT on tobacco and tobacco products, excluding biris.

Analysts reckon that any levy of 12.5% VAT by state governments on cigarettes would impact volumes. In the Union Budget 2007-08, the total excise duty on cigarettes was raised by 6%, which also includes 1% educational cess. ITC derives more than half its revenue from cigarettes.

The cigarette maker, with interests spread over hotels, paperboard, apparel, retail and information technology, already sells ready-to-eat foods, biscuits and confectionery.