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Report to the Conference of the Parties on the Implementation of the Framework Convention on Tobacco Control
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Part II: Price and Tax Measures to Reduce the Demand for Tobacco
1. Duties, Taxes and Sales
Tobacco products are taxed by both federal and provincial/territorial governments in Canada. At the federal level, the Excise Act, 2001 imposes an excise duty on tobacco products manufactured in Canada at the time manufacturers package them and on imported tobacco products at the time of importation. Structuring federal excise duty to apply at this early stage in the production and distribution process provides the most secure tobacco tax base.
In contrast to federal excise duties, provincial tobacco taxes are consumption taxes that are imposed on the purchase of tobacco products by consumers. Although consumers are required to pay tobacco tax at the time of purchase, the provinces secure their tax base and improve compliance by requiring wholesale dealers to remit an amount equal to the tax when they supply the tobacco product to the dealers. The dealers then recover this amount from their customers when the tobacco products are sold.
For tobacco products, the final selling price will include the federal excise duty and provincial tobacco taxes.
Please see attached chart (available in Appendix 4-J) for a detailed breakdown of each of these tax rates by province in Canada.
(a) Federal Excise Duties
Federal excise duties are applied on cigarettes, tobacco sticks, fine-cut tobacco (i.e., roll your own tobacco), cigars, and raw leaf tobacco.
The federal excise duty rates (as of July 2006) for the domestic market are:
- per 200 cigarettes: $16.41
- per 200 tobacco "sticks": $12.10
- per 200 grams loose or 'fine-cut' tobacco for rolling cigarettes: $11.18
Note that other rates apply to cigars and packaged raw-leaf tobacco.
(b) Provincial Product Taxes
Provincial tobacco product tax rates are set by the finance ministries of the provinces and territories. Provincial product taxes per 200 cigarettes vary from a low of $20.60 in Quebec to a high of $42.00 in the Northwest Territories and Nunavut. These rates are subject to change at any time by the province.
There is greater variation in the rates of provincial product taxes per 200 grams of fine cut tobacco, with the lowest rate found in the Yukon Territory ($9.36) and the highest in the province of Newfoundland & Labrador ($60.00).
(c) Provincial Sales Tax
Two provinces charge provincial sales tax (PST) on tobacco products, Manitoba charges 7% and Saskatchewan charges 5%. These tax rates are consistent with the provincial tax charged on other consumer goods. New Brunswick, Newfoundland and Labrador and Nova Scotia all use the Harmonized Sales Tax (HST), see below, which is administered at the federal level by the Canada Revenue Agency.
Other provinces and territories have chosen to roll their provincial sales tax into their provincial tobacco tax. Only the province of Alberta does not charge sales tax on tobacco products.
(d) Federal Sales Tax
The Goods and Services Tax/Harmonized Sales Tax (or GST/HST) is levied on most goods and services in Canada, including tobacco products. The GST is levied on an ad valorem basis, at a rate of 6% (14% for HST) of the final selling price.
(e) First Nations (Aboriginal)
If tobacco products are purchased on First Nations reserves by a status Indian customer, then the provincial tobacco taxes, PST and GST/HST do not apply. The excise duty is still applicable (at the manufacturing stage) and included in the cost of the product.
(f) Export Tax
As a consequence of a tobacco contraband crisis that occurred in Canada in the 1990s, a tax is now imposed on exports of Canadian-produced cigarettes, tobacco sticks and other manufactured tobacco. This export tax is two-tiered. The tax on exports, up to the 1.5% threshold, is refundable to the foreign importer and Canadian manufacturer upon proof of payment of foreign taxes.
(g) Canadian Sales
According to sales data for 2005 the three most popular brands of tobacco products in Canada were:
- Players Light Regular Size Cigarettes
- DuMaurier King Size Cigarettes
- DuMaurier Regular Size Cigarettes
Although the taxes for tobacco products are federally and provincially mandated, manufacturers and retailers are able to set their own prices. Thus the price of a pack of cigarettes varies with each provincial/territorial jurisdiction and across Canada.
General trends indicate that:
- rural retailers tend to charge higher prices for their products than urban retailers;
- prices can differ by as much as $2-3/pack in each province;
- there is very little price difference (if any) between the three most popular brands.
Prices in the capital city (Ottawa) range from about $10.00 to $12.00 per pack. There is no difference in price among the most popular brands. Although "discount" brands are available (in some cases for as little as $7/per pack) in all provinces and territories, and their popularity is rapidly growing, the top selling products remain the premium brand products. However, it is noteworthy that price discounted "value-brands" currently account for 44% of Canadian cigarette sales.
(h) Prohibiting or restricting sales to and/or importations by international travellers of tax- and duty-free tobacco products
Visitors to Canada and seasonal residents are permitted to bring the following amounts of tobacco into Canada without paying duty:
- 200 cigarettes;
- 50 cigars or cigarillos;
- 200 grams (7 ounces) of manufactured tobacco; and
- 200 tobacco sticks.
If additional quantities are brought into the country full duty and taxes on the excess amount must be paid. Travelers must be out of Canada for at least 48 hours to be eligible to claim these entitlements again.
