Shares of leading Indian cigarette manufacturers, ITC and Godfrey Phillips India, experienced a significant downturn in early January 2026, following the Indian government's announcement of a sharp increase in excise duty on cigarettes. The Finance Ministry notified a revised duty structure ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length, effective from February 1, 2026. This new levy is in addition to a 40% Goods and Services Tax (GST) that will also be applicable to tobacco products from the same date, replacing the existing compensation cess. The market reacted swiftly to this development, with ITC shares plummeting by up to 10% and Godfrey Phillips India shares suffering an even steeper decline, falling by as much as 19%. This sharp selloff led to a significant erosion of market capitalization, with ITC alone losing over ₹50,000 crore. The increased tax burden is expected to force cigarette manufacturers to implement substantial price hikes, with analysts from brokerages like Jefferies and Motilal Oswal estimating a 15-40% increase in prices to maintain current net realization. Such price increases are feared to negatively impact cigarette consumption volumes and subsequently, the earnings of these companies. The government's rationale behind the hike includes boosting revenue and aligning India's tobacco taxation with global public health recommendations, which suggest taxes should constitute at least 75% of the retail price, a benchmark India has been below. However, industry bodies, including the Federation of All India Farmer Associations (FAIFA), have raised concerns that the move could hurt the livelihoods of farmers dependent on tobacco cultivation and potentially fuel illicit trade in tobacco products, as higher legal prices might drive consumers towards untaxed alternatives. This tax revision marks the first major shift in tobacco taxation since the introduction of GST in 2017, and its full impact on pricing, consumption patterns, and the industry landscape is anticipated to unfold in the coming months.