Federal budget outlines new taxes on tobacco, vaping

As part of Budget 2021, the federal government announced plans to introduce a “new taxation framework” that includes excise duties on cigarettes and vaping products. 

These so-called "sin taxes" immediately increases the tobacco excise duty rate by $4 per carton of 200 cigarettes and related tobacco products..

“Increasing the excise duty on tobacco products by $4 per carton will directly harm law abiding convenience stores," Anne Kothawala, president and CEO of the Convenience Industry Council of Canada, said in a statement. "As CICC warned in advance of the budget, this will do nothing to reduce smoking rates and instead provide help to the contraband supply networks as the price differential between legal and illegal tobacco will grow thereby fuelling the contraband market. Last December, an EY study found that illegal cigarettes could represent as much as 24% of Canada’s total tobacco market."

In addition, the new duty would apply to vaping liquids intended for use in a vaping device in Canada, this includes liquids made in Canada or imported and applies whether or not the liquids contain nicotine. The tax on vaping products that would start in 2022 if the budget is passed.

It’s estimated the new excise taxes could boost federal revenues by more than $2.1 billion over five years, according to CTV: "Starting in 2021-2022, taxation of tobacco would bring in $415,000,000 of revenue for the federal government. In 2022-2023, it would increase to $440,000,000. By the end of fiscal year 2025-2026, it would total $2,135,000,000 in revenue over five years."

Kothawala says addressing the contraband issue head-on could net governments $600 million or more per year, "without undermining responsible retailers who employ hundreds of thousands of people across Canada. We are very disappointed that a change that directly harms our industry was taken on with no consultation in the middle of a pandemic.”

Finance Minister Chrystia Freeland tabled the 2021 federal budget in the House of Commons on Monday. In the budget document, she notes that, in addition to raising revenues, the taxes could help dissuade people from consuming products considered harmful. “Vaping with nicotine poses risks, especially to young people,” the budget document says. “Nicotine is highly addictive, can affect memory and concentration, and is known to alter brain development in teens.”

Kothawala counters that "Illegal cigarettes are untaxed, unregulated and uncontrolled; they are sold at a fraction of the price of legitimate product, are easily accessible to Canada’s youth and undercut government’s efforts to reduce tobacco consumption."