New Delhi, August 2, 2026: India’s leading cigarette manufacturers, ITC, Godfrey Phillips India, and VST Industries, have reported a sharp decline in underlying revenue and profitability in the April–June quarter, reflecting the first full impact of the government’s higher cigarette taxation introduced earlier this year.
The revised tax structure, implemented from February 1, 2026, raised the GST on cigarettes and tobacco products to a flat 40% while introducing a new additional excise duty based on cigarette length. The move replaced the earlier GST-plus-compensation-cess regime and has significantly increased the retail price of cigarettes across the country.
ITC’s Cigarette Business Under Pressure
Market leader ITC felt the impact despite reporting higher overall revenue. The company posted a 27% year-on-year decline in net profit, as its core cigarette business came under pressure from higher taxes and weaker volumes. While reported cigarette revenue increased due to higher selling prices and tax pass-through, underlying sales and margins weakened as consumers adjusted to the price hikes.
ITC said it has adopted a staggered pricing strategy and portfolio adjustments to reduce the impact of the tax increase while maintaining its market position.
Godfrey Phillips Reports Sharp Profit Fall
Godfrey Phillips India also reported a difficult quarter, with net profit dropping over 44% year-on-year. Although reported revenue nearly doubled because of higher excise collections included in sales, the company’s underlying net revenue declined nearly 19%, indicating weaker business performance after excluding taxes.
The company stated that domestic cigarette volumes remained relatively resilient, but higher taxation and increasing concerns over illicit cigarette trade continued to weigh on profitability.
VST Industries Faces Volume Decline
VST Industries also witnessed the impact of the tax changes. The company reported a 25% decline in quarterly profit, while net revenue fell around 13%. Cigarette sales volumes dropped approximately 14%, reflecting reduced consumer demand following higher retail prices.
Industry Concern Over Higher Taxes
The three companies together account for more than 90% of India’s organized cigarette market. Industry experts believe the steep tax hike could encourage illegal cigarette trade while affecting legal manufacturers’ sales volumes and profitability. Companies are expected to continue increasing prices gradually to offset the higher tax burden, although doing so could further impact demand.
Overview
While diversified businesses such as FMCG, hotels, and agri-products may provide some support to companies like ITC, the cigarette segment is expected to remain under pressure in the coming quarters unless consumer demand stabilizes or the tax burden eases. Investors will closely monitor sales volumes, pricing strategies, and the government’s future tobacco taxation policy to assess the sector’s recovery prospects.
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