Tobacco, gaming stocks sink as Centre mulls 40% GST on sin goods

Tobacco and online gaming stocks traded in the red on Monday, August 18, after the reports suggested that the Centre suggested a 40 percent GST slab on 'sin goods,' sparking some selling in these counters.

In GST 2.0, the government has suggested overhauling the existing multi-slab GST framework by moving to a simpler two-rate structure of 5 percent and 18 percent, while keeping a 40 percent levy on some specified sin or demerit goods.

These select items, which also include online gaming, would continue to attract the maximum GST rate of 40 percent permitted under current provisions.

At 9.30 a.m., key tobacco stocks were trading with losses, ITC, Godfrey Phillips, and VST Industries were lower between 0.5 percent to 1 percent. Online gaming stocks, Nazara Technologies Ltd and Delta Corp Ltd, both sank two percent.

At present, cigarettes are among the most heavily taxed products in India, with the total tax burden working out to about 48-55 percent of the maximum retail price (MRP). This burden is split into different components. Emkay Global noted that various ways cigarettes are taxed:

• GST and cess: A base GST of 28 percent plus a variable cess of 5-36 percent together account for roughly 15–26 percent of the MRP.


• Fixed cess per stick: An additional levy of Rs 2.1-4.2 per cigarette makes up about 25-30 percent of the MRP.


• Other central duties: Basic Excise Duty and NCCD, which are also fixed per stick, add another 5-7 percent.

Reports suggest that under the proposed GST rejig, cigarettes may be placed under a flat 40 percent GST slab. On the surface, this looks lower, as it would translate to taxes of about 26 percent of MRP versus the current 48-55 percent. "Given its sin categorization, we expect neutral-to-a-slight hike in tax and do not see any benefits," noted the brokerage.