[Intl-tobacco] Canada: Government Announces Comprehensive Strategy to Discourage Smoking. (fwd)

[Robert Weissman]

Government Announces Comprehensive Strategy to Discourage Smoking.
Source: Finance Canada, Thursday, 4/5/01

Related documents:

Backgrounder - A New Tobacco Tax Structure in Canada.

Federal Cigarette Excise Tax Rates Since 1993.

Legislative Proposals Relating to

Tobacco Products - Notice of Ways and Means Motion and Explanatory Notes -
(Adobe Acrobat Version - 218,069 bytes)

Statement by the Honourable Paul Martin, Minister of Finance for Canada, on the
Government’s Comprehensive Strategy to Discourage Smoking.

Backgrounder - Health Canada

-----------------------------

Health Minister Allan Rock, Finance Minister Paul Martin and Solicitor
General Lawrence MacAulay today announced a comprehensive strategy to
improve the health of Canadians by reducing tobacco use.

The Government’s strategy consists of increased funding for tobacco
control programs as well as tobacco tax increases to discourage smoking.
Under this strategy, tax increases are linked to a new tobacco tax
structure to reduce the incentive to smuggle.

"This initiative demonstrates the Government’s strong commitment to reduce
smoking and promote good health," said Minister Rock. "It will help reach
young people and fight the marketing practices of the tobacco industry."

Health Canada will invest more than $480 million in a comprehensive,
integrated and sustained tobacco control strategy over the next five
years. Approximately $210 million of that total will be directed towards
anti-tobacco mass media campaigns, with a particular emphasis on youth and
other high-risk groups. The campaigns will be carried out in partnership
with stakeholder organizations outside the federal government.

"The Government’s anti-tobacco strategy will help improve the health of
Canadians by discouraging smoking," said Minister Martin. "By increasing
taxes sharply and introducing a new tax structure for tobacco, we are
taking important steps now and positioning ourselves to take further steps
as need be."

As of April 6, 2001, a combined federal-provincial tax increase of $4 per
carton of cigarettes is proposed to take effect in New Brunswick, Prince
Edward Island, Nova Scotia, Ontario and Quebec.

An excise tax increase of $1 per 200 grams of fine-cut tobacco and $1 per
carton of tobacco sticks will similarly take effect on the same date.

Minister Martin also announced that, effective April 6, 2001, the surtax
on the profits of tobacco manufacturers will increase to 50 per cent of
corporate income tax payable from the current rate of 40 per cent.

Solicitor General Lawrence MacAulay emphasized the need to create strong
disincentives to tobacco smuggling. "There is a link between tobacco
prices and smuggling," he said. "The amount of today’s tobacco tax
increase was arrived at in consultation with law enforcement agencies to
avoid the risk of an increased level of tobacco smuggling," Mr. MacAulay
stated.

The new tobacco tax structure is designed to reduce the incentive to
smuggle Canadian-produced tobacco products back into Canada from export
markets – the main source of contraband in the past.

The main element of this new tax structure is an export tax on Canadian
tobacco products, which is proposed to take effect as of April 6, 2001.
The export tax will be two-tiered, with a $10-per-carton rate applying to
exports up to 1.5 per cent of a tobacco manufacturer’s annual production
and a $22-per-carton rate on exports that exceed the 1.5-per-cent
threshold.

Canada is engaged in discussions with the United States to better achieve
the objective of Canadian tobacco products not being available tax-free
and to avoid double taxation of exported Canadian products. The two
countries working together would not only facilitate the achievement of
Canada’s objectives, but also reduce compliance burdens for U.S.
importers.

The new tobacco tax structure also includes a tax on Canadian tobacco
products delivered to duty-free shops in Canada and abroad, as well as on
tobacco products sold as ships’ stores. In addition, there will be a tax
on imported tobacco products delivered to Canadian duty-free shops. Both
of these measures are proposed to take effect as of April 6, 2001.

Furthermore, effective October 1, 2001, the traveller’s exemption will be
amended to ensure that tax is imposed on tobacco products imported by
Canadian residents returning to Canada.

To help ensure that the tax measures are effective, additional funding
will be provided to federal departments and agencies to monitor and assess
the effectiveness of these measures in reducing tobacco smuggling. These
resources will be targeted to the Royal Canadian Mounted Police, the
Canada Customs and Revenue Agency, the Department of Justice Canada and
the Department of the Solicitor General.

Backgrounders providing further details of this strategy are available.

Minister Martin today tabled a Notice of Ways and Means Motion to
implement these tax changes.

The Notice of Ways and Means Motion and explanatory notes are available
free of charge on the Department of Finance Web site at the address shown
below.  Printed copies of the Notice and explanatory notes are available
for $9 from the Department of Finance Distribution Centre at (613)
943-8665.

___________________

For further information:

Jean-Michel Catta

Public Affairs and Operations Division

Department of Finance

(613) 996-8080

Karl Littler

Senior Advisor, Tax Policy

Office of the Minister of Finance

(613) 996-7861

Andrew Otto

Sales Tax Division

Department of Finance

(613) 996-0346

Dan Brien

Office of the Solicitor General of Canada

(613) 991-2874

Andrew Swift

Health Canada

(613) 957-2988

Catherine Lappe

Office of the Minister of Health

(613) 954-1328

If you would like to receive automatic e-mail notification of all news
releases, please visit the Department of Finance Canada Web site at
http://www.fin.gc.ca/scripts/register_e.asp

Backgrounder –

A New Tobacco Tax Structure in Canada

The Government has introduced a comprehensive package of tax measures
designed to improve the health of Canadians by reducing tobacco
consumption.

This package of proposed tax measures includes:

a new tobacco tax structure that reduces the incentive to smuggle
Canadian-produced tobacco products back into Canada from export markets;
and tobacco tax increases to advance the Government’s health objectives.

Changes to the tobacco tax structure include:

a revised export tax; a tax on Canadian tobacco products delivered to
domestic and foreign duty-free shops or sold as ships’ stores, and on
imported tobacco products delivered to Canadian duty-free shops; and a
change to the traveller’s exemption to ensure that tax is levied on the
previously exempted quantities of tobacco products.

Tobacco tax increases include:

a federal-provincial tax increase of $4 per carton of cigarettes in New
Brunswick, Prince Edward Island, Nova Scotia, Ontario and Quebec; a
federal excise tax increase of $1 per 200 grams of fine-cut tobacco and $1
per carton of tobacco sticks in all provinces and territories; and an
increase in the surtax on tobacco manufacturers’ profits.

More resources are being provided to federal departments and agencies so
that they can:

better monitor and assess the effectiveness of these measures in reducing
smuggling activity.

The tax changes proposed will increase federal revenue by $215 million per
year. Further details on these measures follow. 1. A Two-Tiered Export Tax

The Government has announced a new tobacco tax structure to reduce the
incentive to smuggle Canadian-produced tobacco products back into Canada
from export markets – the main source of contraband in the past. The main
element of this new tax structure is an export tax on Canadian tobacco
products, which will take effect as of April 6, 2001.

The export tax will be two-tiered, with a $10-per-carton rate applying to
exports up to 1.5 per cent of a tobacco manufacturer’s annual production
and a $22-per-carton rate on exports that exceed the 1.5-per-cent
threshold. This threshold represents the approximate level of exports
required to meet the legitimate demand for Canadian tobacco products
abroad, principally in the United States.

To avoid double taxation of these products when they are entered for
consumption into legitimate foreign markets, a refund of the tax will be
provided to the foreign importer and domestic Canadian manufacturer upon
proof of payment of foreign taxes.

The following example illustrates how the refundable export tax will
operate.  All figures quoted in the example are in Canadian dollars.

Export Tax and Refund Example

A Canadian tobacco manufacturer sells cartons of cigarettes to a U.S.
importer.  The Canadian manufacturer pays an export tax of $10 per carton
to the Canadian government.

The U.S. importer pays U.S. federal tax on the imported cigarettes to the
U.S.  government. The U.S. importer would then provide the Canadian
government with evidence that it has paid U.S. federal tax.

The Canadian government would then give the U.S. importer a rebate equal
to the amount of U.S. federal tax paid – i.e., about $5 per carton.

The remaining portion of the $10-per-carton export tax would be refunded
to the Canadian tobacco manufacturer.

The two-tiered export tax will also apply to tobacco sticks and fine-cut
tobacco. The following table summarizes the rates for all products.

Export Tax Rates

Product

Export Tax Rate

(up to 1.5% of production)

(more than 1.5% of production)

Cigarettes (carton)

$10

$22

Tobacco sticks (carton)

$7

$16

Fine-cut tobacco (200g)

$6

$12

By reducing the potential for smuggling, this measure will help set the
stage for future tobacco tax increases.

Canada is engaged in discussions with the United States to better achieve
the objective of Canadian tobacco products not being available tax-free
and to avoid double taxation of exported Canadian products. The two
countries working together would not only facilitate the achievement of
Canada’s objectives, but also reduce compliance burdens for U.S.
importers. 2. Taxation of Sales to Duty-Free Shops and as Ships’ Stores

Tax will apply to sales of Canadian tobacco products to duty-free shops at
home and abroad. Tax will also apply to tobacco products sold as ships’
stores (that is, for inventory sold to airlines and cruise ships).

This measure will help to reduce tobacco consumption. It also complements
the export tax by helping to prevent the cross-border movement of tax-free
Canadian tobacco.

To ensure consistency with the tax treatment of Canadian tobacco products
sold in domestic duty-free shops, imported tobacco products delivered to
duty-free shops in Canada will also be taxed.

Effective April 6, 2001, the tax will apply at the following rates:

$10 per carton of cigarettes; $7 per carton of tobacco sticks; and $6 per
200 grams of fine-cut tobacco.

For Canadian products, the manufacturer will pay federal excise duty
(equivalent to $5.50 per carton of cigarettes) at the time of production.
The balance – excise tax of $4.50 per carton – will be payable upon
delivery to the purchaser.

For imported tobacco products, tax will be payable by the duty-free
operator at the time it takes delivery of the goods. Canadian duty-free
operators will be able to claim a tax refund in respect of the first
carton of foreign-produced cigarettes sold to a non-resident.

The taxation of tobacco sales to duty-free shops will mean higher prices
for consumers. Nonetheless, it will still be cheaper to buy tobacco
products in duty-free shops than in regular retail stores. 3. Traveller’s
Exemption

Currently Canadian residents returning to Canada after an absence of more
than 48 hours may import one carton of cigarettes, one carton of tobacco
sticks and 200 grams of fine-cut tobacco free of all taxes and duties.

Effective October 1, 2001, the traveller’s exemption will be amended to
impose a new tax on these products when they are imported by returning
residents. This measure is intended to reduce tobacco consumption and
ensure equal treatment with Canadian tobacco products.

The tax will apply at the following rates:

$10 on the first carton of cigarettes; $7 on the first carton of tobacco
sticks; and $6 on the first 200 grams of fine-cut tobacco.

The tax will be payable by the traveller at customs upon arrival in
Canada.

To ensure that Canadian residents are not double-taxed when they return to
Canada with Canadian tobacco products on which tax has already been paid,
the amount of tax already paid will be credited against the new tax.

Non-residents will not be affected by this change to the traveller’s
exemption.  4. Federal-Provincial Tax Increase on Cigarettes

As of April 6, 2001, a joint federal-provincial increase of $4 per carton
of cigarettes will take effect in New Brunswick, Prince Edward Island,
Nova Scotia, Ontario and Quebec.

When combined with the goods and services tax (GST) and provincial sales
taxes, the $4-per-carton increase in federal excise tax and provincial
taxes on cigarettes will result in a total tax increase of $4.60 per
carton in Ontario, New Brunswick and Nova Scotia.

Since tobacco products are not subject to provincial sales taxes in Prince
Edward Island and Quebec, only the 7-per-cent GST will be added to the
federal-provincial tax increase – resulting in a total tax increase of
$4.28 in those provinces.

The following table uses typical cigarette prices to show the impact of
these tax increases at the consumer level. It is important to note that
the prices shown in the table are illustrative only and that prices may
vary.

Impact on Consumer Prices (Carton of Cigarettes)

Province

Before

After

Final price

Federal-provincial tax increase

Additional GST

Additional provincial sales tax

Final price

Ontario

$31.68

$4.00

$0.28

$0.32

$36.28

Quebec

$32.58

$4.00

$0.28

$0.00

$36.86

New Brunswick

$37.20

$4.00

$0.28

$0.32

$41.80

Nova Scotia

$38.97

$4.00

$0.28

$0.32

$43.57

Prince Edward Island

$38.79

$4.00

$0.28

$0.00

$43.07

Newfoundland

$53.50

No federal-provincial tax increase on cartons of cigarettes in these
provinces and territories.

$53.50

Manitoba

$47.37

$47.37

Saskatchewan

$46.95

$46.95

Alberta

$41.03

$41.03

British Columbia

$49.59

$49.59

Yukon Territory

$43.60

$43.60

Northwest Territories

$55.16

$55.16

Nunavut

$53.02

$53.02

In Ontario and Quebec the $4-per-carton increase will be shared equally
between the federal and provincial governments.

In the other three participating provinces the $4-per-carton increase
breaks down as follows:

Prince Edward Island – $1.35 federal and $2.65 provincial. New Brunswick –
$0.30 federal and $3.70 provincial. Nova Scotia – $0.10 federal and $3.90
provincial.

The federal excise tax increases in the latter three provinces will bring
the federal excise tax rate in those provinces to a uniform level of $5.35
per carton of cigarettes. This is equal to the federal tax rate that now
applies in the provinces and territories that did not reduce taxes jointly
with the federal government in 1994. 5. Federal Excise Tax Increase on
Tobacco Sticks and Fine-Cut Tobacco

A federal excise tax increase of $1 per 200 grams of fine-cut tobacco and
$1 per carton of tobacco sticks will take effect as of April 6, 2001. This
increase will apply in all provinces and territories of Canada.

The reduced rate of federal excise tax on fine-cut tobacco for sale in
Ontario will also be eliminated. 6. Surtax on Tobacco Manufacturers

Effective April 6, 2001, the surtax on the profits of tobacco
manufacturers will be increased to 50 per cent of corporate income tax
payable from the current rate of 40 per cent. 7. Enhanced Monitoring and
Assessment

The Government’s tobacco strategy provides additional resources to federal
departments and agencies to improve their ability to monitor and assess
the effectiveness of tobacco tax changes in reducing smuggling. These
resources will enable the Government to assess the effectiveness of the
new tax structure and determine the size and timing of future tax
increases.

The Canada Customs and Revenue Agency (CCRA) will receive $32.7 million
over five years for monitoring and assessment and to administer some of
the tax changes announced in this package. The Department of the Solicitor
General will receive $3.2 million over five years to strengthen
enforcement partnerships.  The Royal Canadian Mounted Police (RCMP) will
receive $9.5 million over five years to enhance its capacity to monitor
and assess the effectiveness of tobacco tax changes in reducing smuggling.
The Department of Justice Canada will receive $9.6 million over five years
for its Fine Collection Initiative.

The following table shows the total yearly cost of these measures over
five years. The additional $5 million in 2001-02 is for one-time costs.
Cost of Enhanced Monitoring and Assessment

($ million)

2001-02

2002-03

2003-04

2004-05

2005-06

CCRA

7.9

6.2

6.2

6.2

6.2

RCMP

4.3

1.3

1.3

1.3

1.3

Department of the Solicitor General

0.8

0.6

0.6

0.6

0.6

Department of Justice Canada

2.0

1.9

1.9

1.9

1.9

Total

15.0

10.0

10.0

10.0

10.0

Federal Cigarette Excise Tax Rates Since 1993

(Dollars Per Carton)

PEI

Nova Scotia

New Brunswick

Quebec

Ontario

Other Provinces and Territories

Jan-1994

10.35

10.35

10.35

10.35

10.35

10.35

Feb-1994

1.10

3.35

3.35

.35

.75

5.35

Feb-1995

1.10

3.35

3.35

.95

1.35

5.35

Apr-1995

2.10

3.35

3.35

.95

1.35

5.35

Nov-1996

2.10

4.05

4.05

1.65

2.05

5.35

Dec-1996

2.80

4.05

4.05

1.65

2.05

5.35

Feb-1998

3.40

4.65

4.45

2.25

2.65

5.35

Nov-1999

4.00

5.25

5.05

2.85

3.25

5.35

Apr-2001

5.35

5.35

5.35

4.85

5.25

5.35

Note: The rate of federal tobacco duty has remained at $5.50 per carton in
all provinces and territories since May 1989.

Last Updated: 2001-04-05

Important Notices