Bill C-259 (Historical)
An Act to amend the Excise Tax Act (elimination of excise tax on jewellery)
This bill was last introduced in the 38th Parliament, 1st Session, which ended in November 2005.
John Duncan Conservative
Introduced as a private member’s bill.
This bill has received Royal Assent and is now law.
Export and Import of Rough Diamonds Act
October 25th, 2005 / 1:35 p.m.
John Duncan Vancouver Island North, BC
Mr. Speaker, I am pleased to speak to Bill S-36. It is a fairly straightforward bill, but there is a lot behind it in terms of how we got to where we are today. It is part of the Kimberley Process certification scheme of which Canada is an active member. Actually, Canada chaired the scheme in 2004 and is an ongoing chair of the statistics working group and the participation committee.
One would assume that we would be a leader in this process and here we are dealing with some fairly minor legislation. We are one of only a handful of 48 member nations that are part of this scheme that are not yet in compliance.
This goes to the heart of what has been happening in governance issues emanating not just from the government of the day but from a general malaise at the sponsoring department, Natural Resources Canada, where we certainly had a leadership problem for some time. This is very symptomatic of once again Canada struggling to match its words with its actions. This should have been dealt with in a very straightforward way much sooner.
The truth of the matter is this action has been supported by industry. It is supported by all of the participating territories, provinces and no one is suggesting that this not something we should do and yet it is slow to happen. I asked the parliamentary secretary about Bill C-259, which is a bill I sponsored and has passed the House of Commons, which removes the 1919 tax on jewellery on value added. I understand that bill is now languishing in the Senate. There is some concern that the government is not supportive of the bill despite the fact that the majority of non-cabinet members of the Liberal caucus and basically all of the opposition members voted for that bill.
This is a major concern for the industry because it affects the mining sector and the value added sector. Any of the value added sector which is dealing with producing a product in Canada is actually going to produce for domestic purposes a product that is more expensive than the identical product imported into Canada. That is no way to grow a domestic industry, especially one with the economies of scale that can become a player in the export market.
We have all of the ingredients for a very successful industry in Canada. We produce precious metals. We produce precious stones including diamonds. We have tremendous design and artistry skills. We have jewellery manufacturers, many of which have had to downsize because of increasing global competition.
However much of that is related to either the financial penalty imposed by this excise tax, the hidden tax, or by external investors who have chosen not to invest in the Canadian jewellery sector because they do not like the implications of that tax, how it is imposed and its complexities. It is sort of a double whammy.
The time has long since passed when it was needed. It was to pay for the war effort in the great war, World War I, and yet we do not hear a commitment from the very department, Natural Resources Canada, that should be fighting in cabinet for the speedy passage of that bill. I am quite concerned about that. We have an opportunity here to do something that is very right and I am concerned that instead the government is headed toward doing something that is very wrong.
If we have the right kind of leadership in Canada, we will have, not the world's third largest diamond industry, which has been stated here by Liberal colleagues, but the second largest industry by 2012 if we can give the right kind of assurances that the diamond sector will not be somehow penalized. This is one way to do that.
Another way to do that is to demonstrate, through the budgeting process, that there is a commitment to the mining sector, a commitment to the future and future development of new mines.
The last budget passed by the government was a major disappointment on this front because the mining industry and the prospectors had been assured of significant funding for geoscience. A joint federal, provincial and territorial cooperative geological mapping survey was well developed and there was a strong feeling that the government had bought in, but when it came time for delivery it was not there. This would have cost the federal government a commitment of $25 million annually for 10 years and basically would have mapped great parts of the north, which are not currently mapped, to a level that would have allowed it to be useful.
This is a major infringement on our ability to find and develop new diamond mines and other kinds of mines. We need better leadership on that kind of issue from the government than what we are getting.
Another major disappointment was that the super flow-through, which also applied to the mining sector, was not renewed in the budget. What we now have is some of the provinces actually finding themselves doing more than the federal government, but of course that does not help us in the north where we are into the territories rather than on the provincial scene.
Much needs to be done. We have reached where we are in the Kimberley process because of this whole issue of blood diamonds. It is most appropriate that Canada takes a very significant, strong, positive role in doing everything we can to avoid the issue of blood diamonds.
I have very dear friends who are constituents in my riding who were long time residents of Sierra Leone. I have talked with them about the issue of blood diamonds and it brought it home in a very real way to me. One of the things that was happening is that these diamonds are not mined. These are alluvial diamonds that are basically found on the surface and Sierra Leone is very wealthy in these things. Presumably, if one were to look long enough one could find these things in an exposed fashion without even the need to dig for them.
The areas where these diamonds were found were being controlled by rebels who were largely from Liberia. This was being used to create violence and to control territories in a way that was very ugly. One of the ugly parts was that children were being conscripted by the rebels and then forced to commit atrocities against their own people. The children were often drug addicted by the rebels or placed in compromising positions to spare their own lives or amputation, which is a common terrorist approach used to force their will upon the oppressed youth.
For example, Sierra Leone has the highest rate of amputations in the world and part of the problem is that thumb prints have been used as identification in elections when dealing with people who are illiterate. The rebels used this draconian method to ensure that a portion of the population could not cast their ballots.
When we talk about the Kimberley process and when we talk about how all these measures stack up, we have to be thinking in terms of what it does to address the core issue which is the blood diamonds and ensuring we are not doing anything to compromise the international ability to stomp out these illegitimate diamonds.
I think the Kimberley process has actually accomplished a fair amount on that front but it is certainly not perfect. One thing Canada wants to be sure of is that our production does not get tainted with any suggestion that our system does not have complete integrity because that would affect the marketplace.
We have a country where blood diamonds completely changed its social dynamics. Sierra Leone was once the hub of West Africa, featuring the first university in the region. It was a leader in many cultural and social trends. It also has the third deepest and largest natural harbour in the world. We saw this natural harbour being used in any number of conflicts in the 20th century and most recently by the British during the Falklands War. This has been changed quite dramatically all because of these illegitimate diamonds.
The governance of a country actually becomes compromised in that type of situation and the national treasury, once it is deprived of hard currency, whether it is U.S. dollars, Euros or other forms of currency, is placed in a very impossible position in terms of purchasing commodities on the world market and so on. This is what happened to Sierra Leone. This is what made it so very difficult. We even had situations where we had United Nations peacekeepers in Sierra Leone who became part of the problem rather than part of the solution. I am certainly not suggesting that was the case with any of the Canadian peacekeepers who were there but there was certainly compelling evidence showing that did occur with peacekeepers from other nations who threw their lot in with the rebels in terms of controlling some of the territories.
In terms of what we can do in Canada, another crucial issue is the fact that the Canadian government has been reluctant to enter into any kind of good faith, long term renewable resource sharing with our territorial governments. This discussion, debate, dialogue, discourse has been going on too long and it has made it more difficult to achieve the kind of forward progress that would lead to natural resource development on all kinds of fronts. In my view this is contributing to the ongoing impediments that are now in the way in terms of the development of the Mackenzie Valley pipeline proposal and any number of other projects. It is often difficult to pin down lost opportunity but we have had lost opportunity and that lost opportunity often does not knock again or we may not see it again for generations.
This is an area where we need leadership and an area where the federal government could do a lot but has chosen not to. As a matter of fact, I think the agenda is to slow that entire process down rather than to accelerate it. This is just a different vision of federal-provincial relations from the one shared by the official opposition. I think, once again, we could see some major new developments if the government would change its behaviour.
This summer, I had the opportunity to travel to Yellowknife and then to fly in to one of the two operating diamond mines in Canada in the Northwest Territories, which is about 300 kilometres by air from Yellowknife. I travelled to the Diavik operation which is very impressive. There is a $1.3 billion investment in a place where we have hundreds of highly paid, highly skilled, well trained and mostly northerner employees who are building dikes, pumping out lake water in an environmentally sound and very sustainable way and then removing rock and overburden and then getting into the kimberlite pipes and processing the diamonds which are all used for cosmetic purposes.
This is a huge industry with huge employment benefits and it is all based on this presumption that people will buy these diamonds for cosmetic purposes. That is why the integrity of the system is so important.
Export and Import of Rough Diamonds Act
October 25th, 2005 / 1:25 p.m.
John Duncan Vancouver Island North, BC
Mr. Speaker, this initiative has the support of the diamond mining industry and the value added sector, so did the private member's bill, which I sponsored in the House of Commons, Bill C-259 on removal of the excise tax on jewellery. That bill is now sitting in the Senate. I was wondering if the Parliamentary Secretary to the Minister of Natural Resources would indicate whether the department will be pursuing support of and quick passage of that bill in the Senate to ensure that we get that very positive bill through to royal assent this fall.
Excise Tax Act
Private Members' Business
June 15th, 2005 / 6 p.m.
The Deputy Speaker
The House will now proceed to the taking of the deferred recorded division on the motion at third reading stage of Bill C-259 under private members' business.
Before the Clerk announced the results of the vote:
Excise Tax Act
Private Members' Business
June 13th, 2005 / 11 a.m.
Diane Finley Haldimand—Norfolk, ON
Mr. Speaker, I am pleased to speak today in favour of Bill C-259, an act that seeks the immediate elimination of the excise tax on jewellery and watches.
It is clear from the overwhelming evidence in support for the legislation that the time has come to immediately do away with this punitive and unfair tax.
Before I proceed, I would like to take this opportunity to thank my colleague, the hon. member for Vancouver Island North, for his very hard work and dedication to doing away with this excise tax. The member's perseverance in this regard should be commended.
Increased economic development in my riding of Haldimand—Norfolk is my top priority. Conversely, anything that negatively impacts on economic development is something that worries me. This excise tax has had the effect of unfairly stifling economic development, not only for many businesses in my riding, but right across the country.
As the federal representative for these business owners who are in both retailing and manufacturing sectors, I feel that it is my duty to stand against this tax and stand in favour of this much needed and long overdue legislation. I say this because for far too long constituents in my riding and in many other rural ridings like it have felt either ignored, unfairly treated or even betrayed by the Liberal government.
The government's continued talk about the need to support cities and their increasingly crumbling infrastructure, while necessary and important, often leaves the people in my riding and other residents in rural Canada feeling like second class citizens or an afterthought of the government.
The government's recent budget and its NDP amended version are prime examples of how low a priority the government places on small town rural Canada.
The Liberal budget and the Liberal-NDP budget have nothing in them for struggling agricultural producers, not a cent for desperately needed economic development funding for Haldimand—Norfolk and not one cent of tax relief for hard-working families or for families who choose to take care of their children at home.
The budget did, however, have billions of dollars for state run day care and gas tax rebates for cities. While these may be high priorities for people in urban areas, I must say that it leaves rural residents asking what is in it for them.
The reasons that Bill C-259 merits immediate passage have been mentioned many times before but I feel that it is important to reiterate why it is so important to finally do away with this tax once and for all.
The tax was first introduced in 1918 near the end of World War I. Its main purpose was to act as a luxury tax in order to raise desperately needed funds for the government of the day. Needless to say, the tax has served its purpose and is no longer appropriate in our current context.
To quote a 2004 report by the House of Commons Standing Committee on Finance, this excise tax:
--is an anachronism that no longer serves any social-policy objectives, nor does it fulfill the qualities that should be sought in a tax: equity, efficiency, ease of administration and transparency.
Quite simply, the tax is destroying Canadian jobs.
The 2004 report of the House of Commons Standing Committee on Finance stated:
--this tax is resulting in negative consequences for employment and the viability of Canada’s jewellery industry.
Currently, manufacturers pay an excise tax of 10% on the sale price of jewellery manufactured in Canada and importers pay an excise tax of 10% on the duty paid value of imported jewellery. To highlight how unfair this tax is, if we have an item that is manufactured outside Canada and imported into Canada and it is identical to an item manufactured in Canada, we tax the made in Canada item and do not tax the item coming from beyond our borders.
Put simply, this tax imposes a tariff on Canadian made goods, ensuring that goods made right here at home cost more than goods that we import. This approach is not the way to build a strong economy for our country.
The negative consequences of this tax are numerous. Business bottom lines are negatively impacted, stifling growth and employment and discouraging investment. This excise tax increases the cost of financing inventory for retailers and wholesalers. It also encourages Canadians to purchase their jewellery in the United States or other countries at a much cheaper price. In addition, the advent of e-business transactions is encouraging greater numbers of Canadians to order jewellery on line from other countries because of the savings they get.
While many believe that this tax is justified because it is a luxury tax on the rich, the truth is that a large part of the tax is being collected from low value jewellery purchased by ordinary Canadians. According to Ernst & Young, lower and middle income households account for over 50% of jewellery and watch purchases.
In fact, Canadians are paying this luxury tax on real and imitation jewellery that costs more than three dollars. This hidden luxury tax on items that are of very little value is grossly unfair. As my hon. colleague from Vancouver Island North noted, about one-half of all the jewellery sold by value in Canada contains diamonds.
The province of Saskatchewan is poised to join the Northwest Territories as a world class diamond producer. The premiers who are involved in jurisdictions where diamond production is either present or contemplated are calling for the removal of this tax.
This punitive tax has had the effect of pre-empting local jewellery manufacturing. Furthermore, this tax is discouraging tourists from buying jewellery made in Canada because they know that they can get it cheaper at home.
It is important to note that the Mining Association of Canada said in May of 2004:
In less than a decade, Canada has emerged as a diamond powerhouse...By providing the right mix of fiscal and regulatory policies, governments have the opportunity to maximize the contribution of Canada's diamond industry to the benefit of all Canadians.
Eliminating the federal excise tax on jewellery will help Canada become one of the world's leaders in diamond manufacturing.
I recognize that the government has announced a planned phase-out of this tax in the recent budget. While I am happy that the Liberals have finally come to realize the importance of doing away with this punitive tax, I find it unfortunate that they wish to further stifle job creation, economic development and increased investment by allowing this punitive tax to continue for the next four years.
I know that old habits die hard, but I would encourage the government to give up its tax collection addiction and consider disposing of this tax immediately.
Reducing taxes encourages jobs, investment and a vibrant economy. According to a 2003 study, the jewellery industry has relatively high job creation potential. Jewellery manufacturing creates 40% more jobs per dollar than home electronics or the auto parts industry. The jewellery industry has the potential to create cottage industry jobs in remote areas and in rural areas like mine in Haldimand--Norfolk.
Bill C-259 has had widespread support from all parties in this House. It has widespread support from the jewellery and mining industries. The bill follows up on recommendations made by the House of Commons finance committee and reports by the Auditor General of Canada.
The time for this tax to be completely eliminated is now. That is why I am encouraging all members of this House to support Bill C-259.
Excise Tax Act
Private Members' Business
June 7th, 2005 / 7:05 p.m.
Raymond Simard Parliamentary Secretary to the Deputy Leader of the Government in the House of Commons
Mr. Speaker, this private member's bill, Bill C-259, asks parliamentarians to legislate the repeal of the excise tax on jewellery. I am very pleased to have the opportunity to further debate this proposal. It is an issue that I have been very active on and I was very pleased that we were able to have this tax removed over five years.
Given that Bill C-259 touches on the taxation system and has implications for the fiscal framework, let me begin by making reference to Canada's fiscal record over the past 10 years and the impressive social and economic progress that has followed.
This government has recorded eight consecutive surplus budgets and has reduced the federal debt by more than $60 billion. At the same time, more than $100 billion in cumulative tax cuts has been delivered since 1996, with a primary focus on middle and low income families, and more than $200 billion has been invested in Canada's highest social and economic priorities: health care and equalization; the well-being of children and families; learning, skills and innovation; affordable housing, community infrastructure; and the environment.
We achieved these results through our unwavering commitment to budget balance and fiscal prudence. Indeed, the commitment to fiscal responsibility is a cornerstone of this government. Furthermore, the federal budget tabled in this House on February 23 projects balanced budgets or better in 2004-05 and in each of the next five fiscal years.
According to the Organisation for Economic Co-operation and Development, the OECD, Canada was the only group of seven, or G-7, country to record a total government budget surplus in 2004, for the third consecutive year, and is projected to be the only country in surplus again in 2005-06.
Against this backdrop I would like to turn now to discuss private members' bills, in particular those that affect the taxation system. It is worth noting that the number of such bills tabled in the current session is now approaching 20, all of which propose tax relief in specific circumstances and could collectively represent a total fiscal cost of as much as $3 billion in annual tax relief measures.
Each of these private members' bills deals with a unique aspect of the taxation system. The measures that are proposed in these bills range from the income tax treatment of tools required by employment to deductions for public transportation costs and to the creation of a deduction for charity workers and volunteers.
There can be no doubt that these bills put forward by private members are done out of genuine concern for Canadians and their interaction with the taxation system. At the same time, it is important to remember that each and every one of these bills carries a cost for the fiscal framework.
For example, one private member's bill, Bill C-252, proposes a tax credit for fees pertaining to participation of an individual in physical activity or amateur sport. There can be little doubt as to the many benefits of physical activity and exercise, but with an estimated cost of over $400 million per annum, it is plain that this proposal needs to be rigorously evaluated against other fiscal priorities, including both spending priorities and tax relief priorities. That is to say, we all may agree that encouraging physical activity is a good thing, but we need to consider whether it is the best way to spend over $400 million per year or whether there are more pressing priorities.
This is one of the central points I would like to make: that no matter how laudable or defensible any given proposal might be on its own merits, it is imperative that we not lose sight of the broader implications for the integrity of the taxation system and fiscal framework.
For example, individual proposals, even those that are relatively inexpensive, may create unfairness relative to other taxpayers who then need to be considered as well. Bills may create difficult precedents, have unintended effects or even create opportunities for tax avoidance or evasion and hence end up costing more money. Indeed, the continued consideration of one-off measures may over time increase the complexity of the tax system and affect its overall operation.
Given these concerns, I would suggest that caution must be exercised when giving consideration to private members' bills affecting the taxation system. Rather than being considered on an ad hoc basis, what is required is that these proposals be managed in the context of an integrated policy and fiscal framework.
Indeed, this is precisely the type of approach that underlies the annual budget process, whereby the government consults with Canadians on their priorities for the next budget in order to help determine the important choices that must be made in a world of limited resources. It is this type of comprehensive approach to fiscal planning that has not only preserved the robustness and integrity of the federal tax system, but has also facilitated Canada's impressive economic and social progress over the past decade.
This performance, which has required some difficult choices along the way, provides the foundation for the continued delivery of initiatives that matter most to Canadians, including announcements concerning additional funding for health care, improvements to the equalization system and new funds for community infrastructure across Canada.
These and other initiatives can only be addressed where our economy continues to thrive and it is rooted in a prudent and disciplined approach to fiscal and taxation policy. Within the context of a comprehensive approach to consultation and evaluation of budgetary proposals, I would like to draw the attention of members to the important role that is played by the House of Commons Standing Committee on Finance in advising the government on the initiative proposed in budget 2005 respecting the excise tax on jewellery.
Going back to the lead-up to budget 2005, it is noteworthy that budget 2004 referred to the importance of suggestions from entrepreneurs and small business as part of the budget consultation process. In order to assist the government in identifying the best options for future consideration among the broad range of competing priorities, the government indicated at that time that it would seek the advice of the Standing Committee on Finance.
This provided the finance committee with an opportunity to assess the merits of proposed small business tax relief measures and to advise the government on the relative priority that should be accorded to them, taking into account limited fiscal resources.
In fact, the finance committee delivered in October of 2004 its second report on small business tax measures, focusing on excise duties and taxes as they affect Canada's winemakers, small brewers and jewellers. The finance committee put forward as its priority recommendation two options for phasing out the excise tax on jewellery over five years, either by reducing the rate or increasing the threshold at which the tax applies.
In deciding between these options, the committee indicated that consideration should be given to which of the options would be the more expeditious and involve greater administrative simplicity for the jewellery sector.
The finance committee went on to note that there are many other small business sectors that would benefit from the implementation of appropriate tax changes and that the committee would welcome comments from these sectors during the next round of prebudget consultations. Significantly, the committee was also expressly mindful of the fact that the number of worthy tax relief proposals brought to its attention exceeded the ability of the government to finance them all in a fiscally responsible manner.
The government was very pleased to receive the report from the committee and gave careful attention to the views of the committee on these and other proposals for tax relief in the deliberations leading up to budget 2005. Indeed, the government followed the advice of the finance committee in budget 2005 and proposed that the excise tax on jewellery, clocks and watches and items made of semi-precious stones be phased out through a series of rate reductions over the next four years.
The budget stated that this phase-out would be accomplished by an immediate reduction in the rate of tax on jewellery to 8% from 10% and would then be reduced by an additional two percentage points in each of the next four years until the tax was eliminated. This proposal sets out a clear plan to remove the excise tax to benefit the Canadian jewellery industry in a manner that is entirely consistent with the report and recommendation from the finance committee and that also respects the need to develop and deliver tax policy in a comprehensive, integrated manner.
Bearing these facts in mind, I must admit that it is somewhat disconcerting and disappointing to see that the finance committee is no longer willing to follow its own advice to the House that the excise tax on jewellery should be phased out over a number of years. Instead, contrary to its own report and recommendation, the finance committee has chosen to endorse the private member's bill, Bill C-259, which would repeal the existing tax, although not on all items, on royal assent.
Accordingly, I would like to conclude by noting that the endorsement of Bill C-259 by the finance committee simply does not demonstrate the kind of fiscal prudence and financial responsibility that has allowed Canada to enjoy eight consecutive surplus budgets.
Excise Tax Act
Private Members' Business
June 7th, 2005 / 6:55 p.m.
Guy Côté Portneuf, QC
Mr. Speaker, I am pleased to rise again today to speak to Bill C-259, an act to amend the Excise Tax Act, more specifically to eliminate the excise tax on jewellery.
Perhaps a bit of history is in order. First, as mentioned on a number of occasions in our various debates, this tax was introduced in 1916, at which time it applied to luxury goods. Understandably, in the early part of the 20th century, clocks, watches and jewellery in general were considered luxury goods.
Members will agree with me that the situation has changed considerably over almost a century. In many instances, goods that were indeed luxuries in 1916 are now commonly used. Who does not own a watch? How many women have earrings? These are items one can find in any dollar store.
Another case in point is the fact that the tax applied to various goods, including items made in whole or in part of natural shells. Once again, if we go back 100 years or so, we can understand that jewellery made with natural shells might have been less common. Transportation has evolved so much since 1916 that it is much easier now. Such items can no longer be considered luxury goods.
Many groups have opposed this tax from the beginning and called for its removal. Over the years and the decades, there has been a steady stream of representations and testimonies to the successive finance ministers. Basically, they all asked for the same thing: the removal of this tax which was viewed as a drag on industry.
During the 36th Parliament, the member for North Vancouver introduced a very similar bill to have this tax removed. Also, as part of the prebudget consultation process, many representations were made over the years to have this tax removed. In that context, both in 1996 and in 1997, the Bloc Québécois supported legislation to remove this tax.
I am tempted to say that, this year, in a spirit of conciliation, to try to lay the groundwork so that the minister would bow to the arguments of this industry, the Standing Committee on Finance recommended that the tax be abolished over a five-year period. This recommendation was accepted, almost in a spirit of negotiation. Indeed, the numerous previous finance ministers had always ignored these recommendations.
We thought that, instead of proposing to abolish the tax immediately we could suggest doing it over five years, in the hope that the government might listen. And, indeed, the 2005 budget plan includes this recommendation to eliminate the excise tax over a period of five years. However, let us be clear. This was not what the industry and the vast majority of stakeholders were asking for. Indeed, they wanted the tax to be abolished immediately.
When the committee reviewed Bill C-259, it heard a number of witnesses. It seemed there might be some benefits to eliminating this tax over five years. In order to find out, I asked these people point blank if five years was good enough, or if they wanted the tax to be immediately abolished. They made it very clear that the industry wanted the excise eliminated immediately.
So, this was a compromise, at least in the eyes of the Bloc Québécois members sitting on the Standing Committee on Finance. This compromise, which was agreed to by the Minister of Finance for the first time, did not exactly meet the industry's demands. It only partially met them. By contrast, Bill C-259 proposed by the hon. member for Vancouver Island North effectively meets the industry's demands by proposing the complete elimination of this excise tax.
In this regard, I want to briefly quote an excerpt from the 2005 budget plan. The budget plan may not have been worded with the immediate abolition of the excise tax in mind, but I think it provides some very good arguments in favour of such a measure.
The 2005 budget plan provides that, “Phasing out the excise tax on jewellery ensures equitable treatment of the Canadian jewellery industry and recognizes that jewellery is available at all price levels and enjoys widespread consumption among Canadian households”.
Again, I realize that this wording was prepared with a phasing out period of five-year in mind. However, the case for the immediate elimination of this excise tax remains valid. Earlier, the Liberal member talked about the importance of ensuring that all the measures be taken in the context of all the other measures.
The excise tax would bring in approximately $50 million. I will submit that, compared to last year's budget surplus of $9.1 billion, the amount of $50 million is—all things being relative—a rather small amount. As far as the administration of this tax is concerned, the various stakeholders do not completely agree on that.
According to the Minister of Finance, it will cost about $1.5 million to administer, whereas several others have given figures of up to $14 million to administer revenues of $50 million. Based on that, I say that the cost to the government is no longer $50 million but $36 billion.
There are other reasons to be in favour of this bill. Now there is a variety of jewellery available at a broad range of prices, and the very large majority of people in Canada and Quebec buy it. There is a serious problem: the federal excise tax at present favours imports over jewellery made in Canada and Quebec.
Reference was made earlier to the importance of supporting various businesses and industries. It seems to me that maintaining this measure, even if for only five years, is not likely to encourage the growth of this type of industry.
We have also heard it said that the excise tax hindered job creation and the development of the Canadian jewellery market, and sometimes forced the industry to carry out some operations under the table or off-shore. If these situations can be put en end to as quickly as possible, I encourage my colleagues to move now and not wait five years. It seems to me that we need to find a way of putting an end to any measure that would in any way encourage the underground economy. I think that immediate elimination would do away with that problem.
My colleague from North Vancouver said that the growth of the Canadian diamond industry made it urgent to abolish a tax that he termed—and I totally agree with him on this—an anachronism, when Canada is the third-ranking producer of diamonds and might well, judging by various forecasts, jump to first by 2012.
I see I have but a minute left. I will therefore close by saying that the recommendations of the Standing Committee on Finance were made in a spirit of compromise, somewhat to our surprise. I must, however, thank the Minister of Finance for having retained those recommendations. The industry, however, is for the most part calling for the immediate abolition of the excise tax. We will be supporting this bill.
Excise Tax Act
Private Members' Business
June 7th, 2005 / 6:45 p.m.
Robert Thibault Parliamentary Secretary to the Minister of Health
Mr. Speaker, I am pleased to have the opportunity to deliver comments on private member's bill, Bill C-259, which asks hon. members to repeal the excise tax on jewellery upon royal assent.
I note that the preamble to Bill C-259 makes specific references to diamonds mined in Canada and I think that is a very good place to start.
I would like to discuss Canada's role as a diamond producer.
The rise of this industry in Canada is a very remarkable story. Thanks to more than $1.5 billion in exploration expenditures over the last 10 year and the development of two world class mines in the Northwest Territories, Canada now accounts for about 15% of world diamond production and is in third place by value among the producing countries, after Russia and Botswana.
Canada has a long history in mining exploration and operations. Much important federal legislation has been crafted to recognize the unique way in which this industry operates.
These provisions include the write-off of capital costs and carry-over of resource deductions. Another important feature of the tax system as it applies to mines is the ability of exploration companies to make expenses eligible that investors could not otherwise deduct in the form of flow-through shares.
The government has also taken action to improve the taxation of the resource sector, including measures reducing the corporate tax rate on resource income, phasing in a new 10% tax credit for exploration and production expenses related to diamonds and other qualifying minerals, and phasing out the federal capital tax, an important measure for capital intensive industries such as mining.
For its part, it is important to note that the excise tax on jewellery that is the subject of Bill C-259 proposes no competitive disadvantage to the Canadian mining industry in domestic or international markets. The tax is neutral as between domestic and imported jewellery and gems, being imposed at the same rate on the sale price of domestic goods and the duty paid value of imports. Moreover, exports are not subject and do not suffer any competitive disadvantage on global markets. In sum, the mining taxation regime, including the excise tax on jewellery, provides a very strong base for mining and exploration in Canada, including diamonds.
It is worth noting that the Ekati and Diavik diamond mines are the largest private employers in the Northwest Territories with some 1,300 direct employees. This is clearly a great boost for the north, an area where the government continues to make strategic investments to facilitate economic and social growth.
In addition to the provision of roughly $2 billion per year in transfer payments, the federal government also provides funding initiatives that are tailored to meet specific needs in the north. These include: $90 million over five years to support the northern economic development strategy, aimed at ensuring that economic opportunities are developed in partnership with northern Canadians; $3.5 billion over 10 years to clean up contaminated sites, over 60% of which is expected to occur in the north, leading to jobs and economic development opportunities in the region; and $50 million over 10 years to conduct seabed mapping of the Arctic continental shelf to help secure Canada's sovereignty in the high Arctic under the United Nations convention on the law of the sea.
As well, in the fall of 2003, the Government of Canada announced $190 million for northern infrastructure investments and $155 million for a national satellite initiative to provide high speed broadband Internet access services and to improve access to telehealth, e-business and distance learning services.
Finally, budget 2003 also included other measures that will benefit the north, including $25 million over two years for the aboriginal skills and employment partnership program, $20 million for Aboriginal Business Canada, and $16 million for northern science. All of these measures will greatly facilitate economic and social progress in the north, including the development of skills and infrastructure that will support the mining and diamond industries.
The next point I would like to make concerns the importance of private members' bills. The proposals that are put forward by individual members represent an important link between Canadians, their elected representatives and the parliamentary process. Where private members' bills affect the taxation system, as in the case of Bill C-259, it is especially important that the government take careful note of the intentions that are being expressed.
In the present case, the idea is to repeal the excise tax on jewellery, a long-standing federal tax that raises in the order of $85 million per year. The repeal of this tax has also been presented as a means of providing relief for the jewellery industry in Canada.
Make no mistake, this government supports business in Canada, including both small and large businesses, and continues to review measures to improve the environment for business to succeed. Indeed the suggestions from entrepreneurs and business representatives have formed an important part of the budget consultation process over recent years.
In order to assist the government in identifying the best options for future considerations from among the many competing priorities, the government requested in budget 2004 that the Standing Committee on Finance undertake the important role of assessing the merits of a number of measures proposed to support small businesses.
In October 2004 the finance committee delivered its report recommending that the 10% excise tax on jewellery be phased out over a five year period. I would like to quote to the House the recommendation of this report. It stated:
The federal government implement one of the following options: phase out of the federal excise tax on jewellery over five years; or increase, in increments over a five-year period, the thresholds at which the tax begins to be paid, eliminating the tax at the end of the period.
The finance committee then went on to make the following statement in its report:
As well, the Committee is mindful that the number of worthy proposals exceeds the ability of the federal government to finance them in a fiscally responsible manner. From this perspective, and reflecting on the current priorities of the Committee, we urge the federal government to take immediate action on the recommendation regarding the federal excise tax on jewellery--
As noted by the committee, there are a great range and breadth of requests for tax relief in Canada. It is incumbent on the government and all members of the House that addressing these requests be managed in the context of a comprehensive approach to tax policy and fiscal planning. That is, individual proposals must be evaluated through a process that carefully assesses them in terms of other competing priorities and with a view to preserving the fundamental principle of fiscal responsibility.
Indeed this is what the government understood the process of asking the finance committee to help it assess tax relief priorities was supposed to accomplish. Private member's Bill C-259 represents but one of many proposals for tax relief.
No matter how well intentioned these bills are, the government and members of the House must nevertheless be mindful of the cumulative fiscal impact of these measures and the inherent difficulties of considering these proposals on an ad hoc basis that does not provide an effective mechanism for assessing and evaluating competing fiscal priorities.
Over the last 10 years, the government has maintained an unflagging commitment to balanced budgets and fiscal prudence within an integrated financial policy and framework. This approach has resulted in impressive social and economic progress.
The government will keep its commitments to social and economic progress and will continue to assess all requests for tax relief with a view to preserving the integrity of the tax system and financial framework. All proposals must be evaluated in a comprehensive way to ensure that the most pressing priorities of Canadians are taken into account and receive all due regard.
In fact, the appropriate prioritizing exercise has already been carried out by the government in the lead-up to budget 2005 and the announcement of the proposal to phase out the excise tax on jewellery over four years, consistent with the recommendation of the finance committee itself that was tabled in the House. For that reason and many others, I urge other members of the House not to support Bill C-259.
Excise Tax Act
Private Members' Business
June 7th, 2005 / 6:30 p.m.
John Duncan Vancouver Island North, BC
moved that the bill be read the third time and passed.
Madam Speaker, it has taken a long time for the bill to get to this stage, but I want to thank members of this place for collapsing report stage and moving it on to third reading.
The bill was first introduced last year on November 3 and debated for the first time on November 26. The bill was then scheduled for a second hour of debate just before Christmas, but because the Christmas break was early, it was not until January that the bill was sent to the finance committee.
It might be worth noting that what we are dealing with here is section 5 of the Excise Tax Act, which under the current regulations is a three part clause giving effect to impose a hidden 10% tax on watches and clocks, on semi-precious metals and stones and on jewellery.
This has been a very controversial tax, which has been around as one of a suite of luxury taxes since 1918. It was a consequence of World War I, known as the great war at that time. This very tax was the impetus for the creation of the Canadian Jewellers Association which has been fighting this tax for decades. In fact, I talked to one jeweller who had his first meeting with the federal finance minister on this tax in 1947. This is a very heartfelt measure to finally try to end the last vestige of these so-called luxury taxes dating back to 1918.
Consequent to the fact that the bill was sent to the finance committee in January, the federal budget was announced. Support by members of all parties for Bill C-259 was quite strong.
The government put a provision in the budget in February that this tax would be phased out over four years at 2% per year. This in a sense was welcomed, but in another sense there was further division because a bad tax was a bad idea so why not get rid of it in its entirety. Therefore, my sponsored bill continued in the process.
We are here today, still with industry solidarity and just a few months after the budget document, with a real chance to terminate this terrible tax.
Because the committee had already studied the issue several times, I was hopeful the bill would proceed rather quickly to a vote. Unfortunately, it took nearly the maximum allowable time period before the bill was approved. There were several unexplained cancellations and delays before I was able to appear before committee and during that time the February budget was announced.
I believe it was the strong support for Bill C-259 here in Parliament and among the public that prompted the government to include a provision in the budget to phase out the tax over four years. While I was pleased by that, my opinion then and my opinion today is that a counterproductive tax is a counterproductive tax, and so I have continued with the bill.
When I finally appeared before the committee on March 24, the Parliamentary Secretary to the Finance Minister suggested that the jewellery industry did not support my bill and he moved to dismiss it. There have been continuous attempts to undermine the bill at every stage since.
I am pleased to say that the parliamentary secretary was unsuccessful in doing so. I am also pleased to report that the industry is solidly behind the bill as it was ruled in order today by the Speaker in a very straightforward ruling consistent with all of the legal or legislative advice that I have received on the bill since it started its torturous travel through the committee process.
I was not pleased that the bill continued to be delayed. Despite only one outstanding request to appear before the committee, which was quickly withdrawn in an attempt to see the bill move through the committee without delay, the chair initiated a study which further delayed passage of the bill.
In May the Canadian Jewellers Association and the Quebec Jewellers' Corporation appeared as witnesses and strongly supported the bill and the immediate repeal of the excise tax on jewellery if they could be assured that watches and jewellery were both subject to the provisions of the bill.
Mr. André Marchand, president of the Quebec Jewellers' Corporation, testified at the committee that action was needed immediately rather than four years from now. He said:
If no positive action is taken, this may lead to the industry's imminent demise. The situation is critical and we, as retailers, manufacturers, importers and wholesalers are urging you to address this problem in order to once and for all put an end to this flagrant injustice which has gone on too long.
An immediate and complete scrapping of this provision [meaning the taxation] is therefore fully warranted. We would ask you to review your position, thereby enabling our industry to take back its rightful place despite increasingly tough competition.
The Canadian Jewellery Association also called for the immediate elimination of the tax. The president of the CJA, Carmen Rivet, said:
We have always asked for its immediate and total elimination. This is what we fought for and that is what we have always hoped for.
The testimony of the jewellery industry representatives prompted the committee to pass an amendment to the bill. Bill C-259 was amended to include watches, which I am told made up a significant part of a jeweller's business. I think this greatly strengthened the bill. There was some argument whether the amendment was within the scope of the bill but it was ruled, both at committee and again earlier today by the Speaker, that it certainly was in order.
The bill was passed as amended at the committee on May 19 bringing the bill where it is today before the House.
I believe the time has come to scrap this tax and I urge members of the House to pass Bill C-259.
At this time I would like to share with the House some of the numerous letters I have received in support of the bill and I will read some of the ones I received following the introduction of the federal budget as well.
This is from a jewellery retailer employee who said:
I can't emphasize enough how important it is to eliminate the Excise Tax all at once (instead of phasing it out). The administrative and logistics costs are enormous, and the thought of having to deal with the paperwork and meetings over and over for the next four to five years makes my head hurt.
Please do what you can to let your peers know how much time, effort, and money would be saved by taking care of this once and for all!
I have a letter from the Quebec Jewellers' Corporation dated April 6 of this year. It goes on to explain that:
A clause in this law exempted artisans from the excise tax if they manufactured a maximum of $50,000 per year.
It then became easy and practical to shut down a company as soon as this amount was reached and open new ones as often as needed.
This is another way a bad tax has contributed to tax avoidance behaviour that has been very destructive and undermining of the industry.
Speaking on behalf of the corporation, the president went to say:
Reluctantly, we accepted to spread out the removal of this tax over a period of four years while being convinced that it would have been better to fully abolish this tax as soon as the budget was presented.
We would like to understand why the jewellery industry was dealt with in this fashion, when all other “luxury” industries that were subjected to this same tax benefited from the total repeal of the tax as soon as it was accepted.
In the name of all retail jewellers, manufacturers, importers and wholesalers that we represent, we enjoin you to correct the current situation and terminate once and for all this blatant injustice that has already lasted too long.
For those reasons, we fully support Bill C-259 and the immediate elimination of the excise tax on jewellery.
An immediate, total and complete repeal is fully justified and will allow our industry to reclaim its place despite an increasingly more constraining competition.
This will open the door to healthy competition and place us in a position to respond to a tax originating from emerging countries and the local industry.
I have another letter from Idar Bergseth Designs Inc. which reads:
It is very important for us, not due as much to the cost of the tax, as it is the punitive nature of administering it as craftspeople. It takes us several hours a month just to calculate the tax properly, tracking every piece of inventory, every stone, every finding, and knowing at what stage excise was paid on it.... It's an administrative nightmare.
One other thing that should be pointed out is that much of the slave made jewellery from Asia comes into the country with invoices that are not completely in agreement with the actual cost to the importer. As the goods are taxed at 10% of the value as stated on the invoice, this puts the honest Canadian manufacturers and craftspeople at a further disadvantage.
I have another letter from Pearls Katsuyama, a division of Paramount Trading Co. It states:
As a current member of the Canadian Jewellers Association in good standing, we fully support Bill C-259, in eliminating the unfair Excise Tax immediately.
We have been in the jewellery business for forty years and have supported the efforts of the Canadian Jewellery industry to repeal the tax for many years. It should have been eliminated when the GST legislation was put into place more than ten years ago. At that time, excise tax on all other luxury goods such as fur coats and high priced pleasure boats was eliminated. Only the jewellery industry was burdened with the tax. This affected the growth of our industry and encouraged unlawful import and sale of jewellery and watches. Even a fifty dollar jewellery item or a watch was and is still subject to the excise tax. A huge majority of all the jewellery business owners and those in control, including the presidents of two of the largest retail jewellery chains in Canada are in favour of the full repeal of the excise tax immediately. Eliminating the discriminatory tax on jewellery, watches and clocks will ensure a healthy and growing jewellery industry in Canada, producing new jobs and earning more taxes for our country.
I will finish with a small paragraph from another letter writer. It states:
Thank you for your support on abolishing the truly unfair tax on our industry. You have taken a great direction in terms of reducing smuggling/black-marketing and organized crime and real tax evasion which have festered under this ridiculous cash grab. This tax has caused me grief for thirty-three years [and has] prevented me from competing with smugglers who buy sell for cash.
Points of Order
Oral Question Period
June 7th, 2005 / 3:25 p.m.
Yesterday, as the hon. member for Vancouver Island North has said, a point of order was raised by the Parliamentary Secretary to the Minister of Finance relating to an amendment reported from the Standing Committee on Finance to Bill C-259, an act to amend the Excise Tax Act, elimination of excise tax on jewellery. Submissions on the matter were also made by the hon. member for Peace River and the hon. member for Mississauga South. Now we have the comments from the hon. member for Vancouver Island North for which I thank him.
The question raised is essentially whether the committee exceeded its authority in amending the bill by adopting changes which went beyond the scope of the bill.
As Marleau and Montpetit point out in House of Commons Procedure and Practice , at pages 661 and 662, any amendment made by a committee may be challenged, and I quote:
--on procedural grounds when the House resumes its consideration of the bill at report stage. The admissibility of the amendments is then considered by the Speaker of the House, whether in response to a point of order or on his or her own initiative.
In eliminating the excise tax on jewellery, Bill C-259 technically amended paragraph 5(c) of schedule I to the Excise Tax Act. That paragraph provided for taxation on:
--articles commonly or commercially know as jewellery, whether real or imitation, including diamonds and other precious or semi-precious stones for personal use or for adornment of the person, and goldsmiths' and silversmiths' products except gold-plated or silver-plated ware for the preparation of serving of food and drink...
There are two other parts to the section in question. They provided for taxation on other items such as clocks, watches, and articles made, in whole or in part, of semi-precious stones.
The amendment adopted by the committee combined together all the paragraphs of the same section, which is amended by the bill, but maintained the tax solely on clocks. The effect of this amendment was to exempt watches, articles made of semi-precious stones, and jewellery from the tax.
Did this amendment reach beyond the purpose of the bill or go beyond its scope?
In terms of our procedural rules, the amendment did not stray from the section of the act which was open to it. In terms of the subject matter, it appears to the Chair that the amendment respects items which are commonly considered to be jewellery. To highlight this, I note that the committee specifically did not include clocks as items of jewellery which could be exempted.
Therefore, it is my conclusion that the amendment adopted by the Standing Committee on Finance and reported to the House is indeed procedurally admissible.
Points of Order
Oral Question Period
June 7th, 2005 / 3:10 p.m.
John Duncan Vancouver Island North, BC
Mr. Speaker, I am rising to add to the point of order yesterday by the Parliamentary Secretary to the Minister of Finance.
Yesterday the parliamentary secretary raised a point of order after question period challenging my private member's Bill C-259 as amended and reported back to the House of Commons as being out of order.
This was not a surprise to me. The government has opposed this bill in every forum on almost every occasion, even though it passed second reading on January 31 without opposition and with support from many members of all parties.
The reality is that the government opposes my private member's bill in any format. If it were the same as the original wording at second reading, it would say that it did not include watches. Therefore, it is not inclusive and, therefore, it is inconsistent with the application of the excise tax to jewellery.
As amended at committee, the government has said that the inclusion of watches is outside the scope of the bill at second reading in the House of Commons because it expands the bill to include watches as jewellery.
To respond, I would first like to correct the statement made yesterday by the Parliamentary Secretary to the Minister of Finance that Bill C-259, as reported back to the House of Commons, repeals the excise tax on jewellery, watches and clocks. This is not correct. Clocks are excluded by the wording of my amended Bill C-259. It is extraordinary that the parliamentary secretary could get this so wrong.
The central argument that the Parliamentary Secretary to the Minister of Finance is making is that watches are defined separately from jewellery in the Excise Tax Act. Therefore, the bill is out of order because it deals with jewellery in the original text and not watches.
I submit there is clear language in the Excise Tax Act which includes watches as jewellery. Section 23.11 and section 43, which I will quote, clearly support the notion that the term jewellery is intended to include watches by providing the following enumeration, “watch, clock, ring, brooch or other article of jewellery”. If watches were not supposed to be included in this enumeration of items of jewellery, then it would have been written as, “he shall, for the purposes of this Part, be deemed to have manufactured or produced the watch or clock, or ring, brooch or other article of jewellery in Canada”. This construction would have clearly excluded watches from the enumeration of items of jewellery, but this was not done.
Bill C-259 deals with section 5 of the Excise Tax Act, which consists of three paragraphs. On the issue of whether section 5 is separately defining jewellery, I submit that it is clearly not. Legislative counsel argues at worst it leaves the term undefined. Therefore, it is within the jurisdiction of committee to decide for itself whether the amendment to Bill C-259 that was reported back to the House is within the scope of the bill at second reading.
Legislative counsel has dealt with the issue of whether the amendment was out of order both with my office and at committee. I am sure that the Speaker may also wish to seek their counsel or perhaps you have already done so.
Legislative counsel was in attendance at committee and was consulted. I think it is fair to say that legislative counsel was under considerable pressure to clarify his position and was very careful in the choice of language as a result.
I can quote from the last meeting of committee at which Bill C-259 as amended was adopted. That was the meeting of May 19 of this year.
As the sponsor and as a witness at that meeting, I said:
What I would like to do at this time is ask legislative counsel, who is here today at my request, to explain further as to how the term “jewellery” is an undefined term in legal language.
Mr. Doug Ward, legislative counsel, law clerk and parliamentary counsel officer of the House of Commons said, and I quote from the minutes of the meeting:
It's just a straightforward fact that in this particular act there is no definition of jewellery, so jewellery just has the ordinary everyday meaning of that term. There's really nothing more to that point than this.
Later Mr. Jean-François Lafleur, procedural clerk, stated at the same meeting:
When we are dealing with an amendment to a bill, the first rule is that the amendment must respect the section in the bill under consideration. In the bill that concerns us here, C-259, there is an amendment to section 5 of Schedule 1 to the Excise Tax Act. At that point, section 5 is open. It is not just paragraph 5(c). That is the first rule.
The second rule, as the Chair said and as you were saying--
He was referring to the member for Mississauga South:
--is that there is still the question of the scope of the bill. That is the second rule.
[The member for Vancouver Island North's] amendment is fully consistent with the first rule, in that it is an amendment to a section that is already open. There is no problem in that regard.
As for the whole question of the scope of the bill, excuse me for repeating myself again, and I know that you might not like this. I understand full well that the purpose of the bill is to do away with the excise tax on jewellery, but the definition of jewellery would have to be clear. That would enable us to determine precisely what the parameters of the scope of the bill are. But in this case, the definition is not at all clear, as far as I am concerned. An attempt was made to come up with a definition, but it could not be done. That is the conclusion I drew after a few consultations.
That states my case. The finance committee considered all the arguments and the committee chose to amend the bill and report it back to the House. The lack of clarity of the language of the Excise Tax Act, which is demonstrated by this discussion and point of order, is demonstrable of what is a nightmare for the industry also.
For example, three different Canada Customs and Revenue Agency audits of the same set of business activities by the same company have come up with three vastly different results. These results were a multi-million dollar reassessment or tax billing in the first instance, a revised tax assessment of about a half a million dollars in the second instance and a credit from the government in the third instance. This is a matter of public record.
Adoption of Bill C-259, as amended and reported to the House and up for report stage debate today, would terminate this confused state of affairs. The committee, by voting that the amended version of my bill was within the scope of the bill and was consistent with the advice of legislative counsel, has now placed the House of Commons in the same position. I cannot comprehend why this advice would be any different to the House of Commons than it was to the finance committee.
I ask the Speaker to reject the request by the Parliamentary Secretary to the Minister to Finance to rule Bill C-259 out of order. The bill is in order and I request the Speaker to so rule.