ITC overturns as Lok Sabha okays VAT levy bill for tobacco

ITC lost 1.7% to Rs 142.40, after the Lok Sabha on Monday passed the bill that allows more than 4% VAT on tobacco.

The ITC scrip has been tumbling in the past few days due to concerns that the government may bring cigarettes under the Value Added Tax (VAT) net. From Rs 172.50 on 1 March 2007, ITC tumbled to Rs 142.85 by 14 March 2007. The ITC stock had surged 3.1% on 15 March 2007, to Rs 147.35 boosted by media reports that its food unit was likely to bid for Patak's, UK, which is valued at about 200 million pounds. The recovery proved short-lived and the stock slipped to Rs 145 on Friday (16 March).

The Taxation Laws (Amendment) Bill of 2007 passed by Lok Sabha paves the way for states to levy more than 4% value added tax (VAT) on cigarettes.

Last Friday (16 March 2007), West Bengal became the second state after Bihar to propose value added tax (VAT). In the state budget for 2007-08, the West Bengal government 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 cigarette 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.The current price of Rs 142.40 discounts its April-December 2006 annualised EPS of Rs 7.30, by a PE multiple of 19.5.