Smokers will have to dig deeper
O T TAWA — The federal government is substantially hiking taxes on cigarettes, chewing tobacco and cigars — a move that is sure to leave Canadian smokers doing a slow burn and raises the spectre of increased contraband sales.
Even so-called “duty free” tobacco won’t be spared the tax hike announced in Tuesday’s budget: They’ll now face the same federal excise taxes as domestics mokes and manufactured tobacco.
The government expects to take in an extra $3.3 billion in revenue from the tobacco tax hikes between now and the 2018-19 fiscal year (including $685 million in the 2014-15 fiscal year starting April 1).
The move is sure to spark some ill will toward a government that has promised it would not increase taxes on Canadians, as Ottawa looks to balance the books in 2015, partly on the backs of smokers.
The excise duty on a pack of cigarettes will increase by about $4 per carton of 200 cigarettes, to $21.03 from the current $17, an increase of about 24 per cent. The government says the federal duty on cigarettes has effectively not increased since 2002 and that the hike accounts for inflation.
A corresponding tax hike will also be applied to tobacco sticks, with the duty also increasing to $21.03 per 200 tobacco sticks from the current $17.
The federal excise duty on manufactured tobacco — such as chewing tobacco or fine-cut tobacco for rollyour-own cigarettes — will rise to $26.29 per 200 grams from the current $21.25. The excise duty on cigars will go to $22.89 per 1,000 cigars, from the current $18.50, and the additional cigar duty will also increase.
The tax hikes take effect Feb. 12.
“Taxing tobacco products at a sustainable level is an important element of the government’s health strategy to discourage smoking among Canadians,” the budget says.
The government is also increasing the “duty free” excise tax on all Canadianmade cigarettes, tobacco sticks and manufactured tobacco for sale in domestic and foreign duty free shops, as well as on imports of these products for sale in Canadian duty-free shops.
Currently, a carton of 200 cigarettes receives a $2 excise duty preference compared to a carton in the domestic market — $15 per carton compared to $17. The budget changes will see the duty-free rate for cigarettes increase to $21.03 per carton of 200 cigarettes, in line with the changes for smokes available in the domestic market.
The duty-free rate on tobacco sticks and manufactured tobacco will also increase to the same rate as those in the domestic market — to $21.03 per 200 tobacco sticks and $26.29 per 200 grams of manufactured tobacco.
And the tobacco tax hike will continue into the future: The government announced that the higher excise taxes will be indexed to inflation and automatically adjusted every five years.
The first inflationary adjustment, beyond the higher rates announced Tuesday, will be effective Dec. 1, 2019.
Pamela Fralick, president of the Canadian Cancer Society, said the tax hikes will save lives. Tobacco prices are an important factor in sales, especially with young Canadians, she said.
“We want no new smokers. It’s not about being against smokers. It’s about being against the damage and the tragedy that arise from smoking,” Fralick said.
“So by increasing the price, we’ll decrease the number of young people who start smoking and you save lives — it’s that simple.”
The excise duty is slapped on tobacco products made in Canada at the time manufacturers package them and on imported tobacco at the time of importation.
In an effort to ensure that the higher tobacco rates are applied consistently to all cigarettes, the government will impose a tax of roughly two cents per cigarette on inventories held by manufacturers, importers, wholesalers and retailers.
The tobacco tax hike is certain to increase contraband tobacco in Canada, a point the government seems to acknowledge. The budget promises about $92 million over five years to help the RCMP combat contraband tobacco.