Share prices of cigarette makers ITC, Godfrey Phillips and VST Industries along with Varun Beverages declined on Tuesday after reports suggested that the tax slab on ‘sin goods’ is likely to be hiked.

Varun Beverages share price plunged as much as 5.18%, ITC stock price declined 3%, Godfrey Phillips India shares declined as much as 3.16%, while VST Industries stock fell 2.27% during Tuesday’s trading.

The fall in these shares comes after a report said that the Group of Ministers on goods and service tax (GST) rate rationalisation has recommended to raise tax on cigarettes, aerated beverages, tobacco, and related ‘sin’ products to 35% from the current 28%.

“The GoM has agreed to propose a special rate of 35% on tobacco and related products and aerated beverages. The four-tier tax slab of 5, 12, 18, and 28% will continue and a new rate of 35% is proposed by the GoM,” the news agency PTI reported citing an official aware of the development.

Thus, according to the report, the proposal implies creation of a new 35% GST rate slab for tobacco and related products.

Analysts expect an increase in taxes on cigarettes is likely to lead to a significant decline in cigarette sales volumes for companies due to reduced consumer spending. This shift may result in a sharp drop in sales. Additionally, issues over downtrading, counterfeiting or consumers shifting to lower-priced alternatives also weigh on cigarette sales.

In a stock exchange filing, ITC said, “We write to advise that the news item under reference is not attributable to any event / information emanating from within the Company and therefore, we are unable to comment on the same.”

At 2:40 PM, ITC share price was down 1.12% at ₹471.80 apiece, Godfrey Phillips shares were down 1.03% at ₹5,698.30, VST Industries share price traded 0.25% higher at ₹326.50, while Varun Beverages shares were down 1.90% at ₹620.75 apiece on the BSE.

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