Canada will only sell e-cigarettes with excise tax stamps from next year
Canada is strengthening its regulatory regime for the manufacture and sale of vaping products.
From October 1, manufacturers and importers must be licensed or registered with the Canada Revenue Agency, must affix an e-cigarette excise stamp on their products, and pay excise tax. A transition period from October 1 to December 31, after which retail stores can only sell stamped vaping products. The changes come from amendments to the Excise Act 2001 and its Federal Budget Regulations 2022.
Robert Kreklewetz, an indirect tax, customs and trade attorney at Millar Kreklewetz LLP, said the changes meant the federal government could effectively treat vaping products, such as tobacco products, for tax purposes.
A pack of 20 cigarettes is subject to a federal excise tax of $2.91, while a roughly equal amount of two milliliters of vaping liquid is subject to a $1 duty. This applies to nicotine-free liquids, he added.
"When e-cigarettes first came out, as with any new technology, the government was a little slow to respond and act," Kreklevitz said. "How they're regulated from a product perspective, and how they're regulated from a tax perspective, it's a bit of a Wild West situation. Apart from our federal VAT, there's no The special tax applies - just like it applies to any other commodity. But there is no special excise tax, and certainly no cigarette system for e-cigarettes. Now everything has changed.”
Canada also regulates vaping products through the Tobacco and Vaping Products Act and the Food and Drugs Act, and has regulations limiting nicotine concentrations, as well as packaging and labeling rules.
Tax policy is often aligned with public policy, and attaching an excise tax -- a sin tax -- to e-cigarettes will reduce the incentive for smokers to switch when e-cigarettes are a less harmful alternative to smoking, Kreklewetz said.
Kreklewetz said: "If you look at e-cigarettes as a way to get current smokers to quit smoking and switch to consuming nicotine instead...every dollar you tax on e-cigarettes is just an economic impediment to quitting." If I'm vaping as much as smoking, why should I make a change?
"This is the fuzzy logic I see in the new tax system," he said. "The way the federal government works these days, it's running out of new revenue streams. So people may see e-cigarette taxation as a tax grab rather than good public policy."
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