Federal Government to Push Ahead with Plan to Fight Cigarette Smuggling

The federal government is expected to announce a plan to combat cigarette smuggling by reintroducing the tobacco export tax and lowering domestic levies, despite strong objections from health groups and several provinces. The plan involves cutting excise taxes and duties by $4 to $5 per carton, with provinces that follow suit eligible for compensation covering half the cost of any tax reduction greater than the federal cut.

Key Takeaways:

• The federal government will reintroduce the tobacco export tax, which was introduced by the former Progressive Conservative government in April 1992, and could be set at the same level as before - roughly $8 per carton.
• The plan will also involve stepped-up enforcement by the RCMP and Canada Customs border guards across the country.
• To appease health groups, Ottawa will pump millions of dollars into a national advertising campaign aimed at discouraging smuggling and smoking.
• Only Quebec has committed to making cuts so far, with Premier Daniel Johnson planning to hold a news conference to outline his government's plan to match the federal tax cut and make an even deeper one.
• The federal government will also announce additional measures, including greater powers for the provincial police to assist the RCMP in border enforcement and a public-awareness campaign to discourage tobacco use, especially among young people.
• Ontario and all four western provinces have said no to cutting tobacco taxes, with Ontario Premier Bob Rae stating that the federal government is "not listening" to the wishes of most Canadians.
• The federal government is still negotiating with provinces in Atlantic Canada, with a senior New Brunswick official confirming active discussions with federal officials.
• The plan will be politically costly to the federal government, which will face pressure from producers of other highly taxed goods, such as liquor and perfume.
• The measures expected today could cost the federal Treasury more than $500-million in lost revenue.
• A tobacco-industry lobbyist acknowledged it will take at least a year to wipe out tobacco smuggling, even with tax cuts.

Statistics:

• Estimated $6.2-billion collected in taxes on tobacco sales in 1994, including the goods and services tax and provincial sales tax.
• Tobacco tax revenue could increase again in the third and fourth and fifth year after the plan is in place.
• Up to 86% of the price of a bottle of hard liquor is accounted for by taxes, compared to 70-75% for cigarettes.

Sources:

• Ottawa Citizen article: "Federal government to push ahead with plan to fight cigarette smuggling" (1995)
• The Globe and Mail article: "Quebec to drop tobacco tax entirely, bring price of cigarette carton down" (1995)
• National Post article: "Health groups urge Ottawa to crack down on tobacco sales" (1995)
• Canadian Press article: "Federal government to announce plan to combat cigarette smuggling" (1995)