No tax high for legal Canadian cannabis
CANADA will have little wiggle room to tax recreational marijuana sales when it moves to legalise the drug, a report to parliament said.
One of the key rationales cited by supporters for ending the prohibition on pot has been the bounty of tax revenues legalisation would bring.
But parliamentary budget officer Jean-Denis Frechette, tasked with providing analysis to lawmakers, warned it would not be a bonanza.
Retail sales taxes are expected to be relatively modest at the start – about C$300 million to C$600 million (US$224 million to US$448 million) and not billions, he said.
That is far below the annual future cannabis tax revenue of up to C$5 billion estimated by CIBC World Markets in January.
Also, tax policy decisions will require trade-offs between the government’s two main objectives: discouraging consumption among Canadian youths and reducing the profits in the illicit cannabis market.
“The government will have little fiscal space to apply tax without pushing the price of legal cannabis significantly above the illegal market price,” Mr Frechette said.
He said higher cannabis prices will discourage consumption, especially among young Canadians who are likely to be more sensitive to price.
But higher legal cannabis prices provide a disincentive for current users to transfer to the legal market.
The average price of illicit cannabis this year ranged between C$8.32 and C$9.36 per gram. The pre-tax price of legal cannabis is projected at between C$6.67 and C$8.33.
Canada will become only the second country to fully legalise recreational cannabis, after Uruguay, with legalisation seen next year or in early 2018. –