Tobacco Taxes and Duties
MILLAR KREKLEWETZ LLP is a boutique Canadian law firm with lawyers who have significant expertise in tobacco tax and duty matters, including tobacco tax and duty issues arising under the Excise Act, 2001, and the taxes imposed under various provincial taxing legislation like the Ontario Tobacco Tax Act.
The following is a short introduction to tobacco taxes and duties in Canada.
Tobacco Taxes & Duties
Tobacco Taxes and Duties Legislative Framework
Federally tobacco was previously taxed pursuant to the Excise Act. However, a new regime in Canada for the federal taxation of tobacco products was introduced in the Excise Act, 2001, which was implemented effective July 1, 2003.
Provincially, virtually all forms of tobacco are also taxed under provincial legislation like the Ontario Tobacco Tax Act.
Federally: Tobacco Taxes & Duties Rates
Overview - Under the Excise Act, 2001, existing rates of excise duty on tobacco products are combined with rates of excise taxes to become a single rate of excise duty.
Different rates of duty apply to cigarettes, tobacco sticks, manufactured tobacco, cigars, and raw leaf tobacco (the Excise Act, 2001, does not differentiate between varieties of raw leaf tobacco). The duty is imposed at the time of packaging or importation, and is payable by either the tobacco manufacturer or the importer.
Further, tobacco products are subject to various provincial taxes pursuant to provincial legislation at the sales level. These rates vary from province to province.
Tobacco Taxes and Duties Licensing Requirement - A licence is required authorizing certain tobacco operations under the Excise Act, 2001. This licence is valid for a period of two years.
Currently, the following operations require a tobacco licence: the manufacture of tobacco products; the storage of tobacco products that are not stamped; and the activity of a tobacco dealer (i.e., the buying and selling of raw leaf tobacco on which duty has not been imposed).
All tobacco licensees are required to post and maintain security with the Canadian government. The amount of security is set at a minimum of $5,000 and a maximum of $2,000,000.
Stamping and Marking of Tobacco Products - There are various stamping and marking requirements for tobacco products, which ensure that duty paid tobacco products can be clearly distinguished from duty free products.
The Tobacco stamp indicates that duty has been paid. For cigarettes, this usually takes the form of what is commonly known as a tear tape, and for other tobacco products, a more traditional rectangular stamp is usually used. The stamps may be modified to accommodate provincial requirements, including specific provincial information and designated colour.
A tobacco mark indicates that duty has not been paid and that the tobacco product is destined for the non-duty-paid market (e.g., exports).
Provincially: Tobacco Taxation
Overview - The various Canadian provincial legislation attempts to comply with over-arching constitutional requirements by taxing only the "final consumers" of tobacco in the province, while imposing theoretical amounts on account of that same tax on all other intermediaries in the process (often referred to as "pre-collection" obligations), imposed for example on importers, manufacturers, wholesalers and retailers.