Bill C-259 (Historical)

An Act to amend the Excise Tax Act (elimination of excise tax on jewellery)

Excise Tax Act

[Paul Crête, Bloc, Rivière-Du-Loup—Montmagny, QC]

Mr. Speaker, since this is the first time I am speaking in this House this year, I want to take this opportunity to express my best wishes for the new year to all my colleagues, my constituents and Quebeckers and Canadians. May 2005 be the best year possible.

I rise this morning to speak to the bill to eliminate the excise tax on jewellery. This tax has existed since 1917. It was introduced to help meet financial needs during the First World War. After the war, the federal government followed its usual practice and kept the tax. The war was over. The tax still exists today.

In my opinion, we need to fix the way our files are handled, to some extent. I am referring here to the speech by my colleague from Portneuf—Jacques-Cartier, who rose on November 26 to make the Bloc Québécois' position known as soon as the debate started. Our position on this is quite clear and has been so for some considerable time. Representations were made to the Standing Committee on Finance. As early as December 1996, we stated that the excise tax on jewellery should be abolished. Our party, like all parties represented on the committee, had accepted this recommendation, which the December 1997 report reiterated in its entirety.

Subsequent representations were, in fact, made. The Canadian Jewellers Association wants this tax to be eliminated. Believe it or not, It still applies to the sale of jewellery over $3, when clearly things have changed. In terms of the overall federal budget, abolishing this tax would generate additional costs of $55 million, although we know what effect this would have on the labour market. We must not forget that in Canada, for example, a diamond market is developing and becoming established.

A round table, created by the government through natural resources, wanted this 10% tax to be eliminated in the context of the development of a Canadian and Quebec diamond industry. Various parts of Canada, but especially Matane, in eastern Quebec, are interested. A diamond-cutting school is being set up and an industry will possibly follow. Now would be a good time to eliminate irritants such as this 10% tax on jewellery.

This tax is included in the price. It can be a fixed amount added to other products. For jewellery, it represents 10% of the price. It still applies to gasoline, tobacco, alcohol and jewellery. In most cases, the aim is to discourage the sale of such items. This is not the case for jewellery.

When this tax was put in place, there was no GST as there is today on purchases. If someone buys a costly piece of jewellery, there is GST charged on it already. At this time, the excise tax is nothing but a hindrance to the development of an industry that needs to become more established. I have referred to the diamond industry, but this is also the case for all the jewellery stores in our ridings, be they large chains or smaller family businesses or the like.

The government therefore absolutely must do something in the coming budget. So much the better if this bill were debated and passed now. The government could be proactive and take the step in the coming budget of abolishing this tax, particularly since it has the backing of the industry involved, as well as the Standing Committee on Finance. In light of the present financial situation, the government ought to do the math, because I am not convinced that, when it comes down to it, it is currently a winning proposition to keep the 10% excise tax. This is a federal tax collected on items that are either imported, manufactured or made in Canada, based on the fair value of imports or the selling price of items manufactured in Canada.

The Bloc Québécois calls upon the members of this House to vote in favour of this bill so that this outmoded tax can be done away with, thereby giving a worthwhile boost to the jewellery industry. A number of people in our part of the country own businesses in this sector. This would, in some ways, also be a means of counteracting the negative effects of globalization and allowing our businesses to offer products to consumers at attractive prices.

People tell us this is a tax on luxury items. However, as the president of the Canadian Jewellers Association said, there are basic products we should be able to buy, because today they are part of regular commerce. There is already another tax that can compensate, that is the GST on the value of the item. Consequently, the fact that an item is taxed from the value of $3 is, in our opinion, completely archaic and outmoded.

The jewellers argue that the tax is unfair because it applies only to their products, thus lowering their sales. In the end, it costs jobs and encourages smuggling and the black market. For these reasons and having assessed the financial impact of such a tax, the Bloc Québécois considers that eliminating it is preferable.

Thus, we will support Bill C-259, an act to amend the Excise Tax Act (elimination of excise tax on jewellery). We believe it is important for the House to take this step.

In conclusion, there are many areas of Canadian taxation policy that need to be cleaned up. It is time for spring cleaning and for a new kind of organization. This is one very clear and very obvious sign. In my opinion, we are no longer in the 1994-2004 period, where the watchword of the current Prime Minister, who was then finance minister, was to wring out every last drop to bring in money. We saw the results of this in the employment insurance fund, from which $45 billion was taken to pay off the deficit and to spend on anything but the employment insurance system.

In practice, we are facing the same situation with respect to this tax. It was a way to accumulate as much money as possible. For the entire economy, the federal government must see itself as a government rather than a corporation. The point is not to amass as much money as possible in the federal government's treasury, but to ensure that there is a balance and that our taxation system corresponds to the economic realities of today.

Therefore, for all these reasons, the Bloc Québécois will vote in favour of this bill.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Mr. Speaker, it is certainly a pleasure for me to speak to private member's Bill C-259 put forward by the member for Vancouver Island North. When he spoke earlier, I had the opportunity to ask a couple of quick questions. I said that he had done an absolutely stellar job in presenting this bill. I wanted to put that on the record one more time.

This is an important bill. It is important not just to a burgeoning diamond industry in Canada's north, but it is important to our resource sector. It is important to the gold mining industry, the silver mining industry, the gemstone industry across this country, and specifically and probably most important right now, to the diamond industry.

In 1918 a tax was brought in, which obviously was to pay for some of the reparations of World War I and the cost of sending Canadian troops abroad. At that time, just as the Income Tax Act which was brought in after World War II, it seemed to be a good and important idea, but today, times have changed.

I am a bit apprehensive and concerned. In his speech the government member who just spoke used all kinds of flowery words about fiscal responsibility and whether the government must look at this in a piecemeal fashion or use a bigger umbrella. I have some real concerns that the government will try to find a way not to support this piece of legislation.

It is one thing to talk about the importance of private members' bills and it is another thing to support them. This is a good bill. The industry has been requesting it for years. It is important and the government needs to support it without any ifs, ands or buts.

I want to speak about the Department of Finance for a minute. There was a study done by the Department of Finance about removing the excise tax. Remember that jewellery is the only luxury item that still has excise tax on it. People can buy a $50 million yacht in this country and not pay excise tax because it is not a luxury item. People can buy caviar, champagne or a mink coat and none of those are luxury items. Those are necessities of life. Yet a person cannot buy a piece of jewellery worth over $3 because that is a luxury. It is just wrong-headed.

The study done by the department concluded that removing the tax would not have a significant impact on contraband activity and therefore, would not offset lost revenue. I would like to speak to that for a second. How did it come up with the conclusion that it would not have a significant impact on contraband activity?

Even though the Canadian dollar has increased in value, it is still worth less than the American dollar. However, our jewellery costs more because there is a 10% tax on it. We are going to pay 17¢ on the American dollar to go to the United States to save 10% on a piece of jewellery, which we are going to smuggle back into the country. And this would not stop that? It would absolutely stop it in a heartbeat. People would not even consider it.

Why would a person buy a $5,000 diamond ring in Canada and pay $500 more than he or she would have to pay south of the border? The person could put it on his or her finger and wear it home. Everybody would do that. Everybody is doing that. This bill is only common sense.

Any money lost, or any thought of losing money, would be more than compensated by the increase in jewellery sales and the collection of the GST, which is 7%, on those sales. This is not rocket science. Even Liberals should be able to figure this out. This is common sense, straightforward, financially sound legislation and it is long overdue.

Let us look at a couple of numbers. In 2003 11.2 million carats of diamonds were mined in Canada for a total of $1.7 billion. That is out of two mines, the Ekati and Diavik mines. There are another three or four mines ready to come on stream. There is another diamond mine in Nunavut ready to come on stream. A half carat diamond has been found in northern Alberta. Diamonds have been found in northern Saskatchewan.

We have finally signed, through the United Nations, an accord to reduce the blood diamond industry of the world. We have the best source of quality gemstones in the world. We are continuing to punish the industry by saying it has to pay 10% more, ship them abroad. If people want nice diamonds, they can go to Antwerp or Boston. Perhaps there is a secret message, and the Liberals want us all to go somewhere else. I am not sure. We really have to deal with this. Tongue in cheek aside, it is an extremely important industry.

Along with that $1.7 billion diamond industry, Canada is the seventh largest gold producing nation in the world. Canada mined 152 tonnes or $2.7 billion worth of gold, with no value added. Keep Canadians, and northerners in particular, as hewers of wood and drawers of water. The government does not want them to think for themselves or to set up an industry that would allow them to become financially secure, independent and produce for themselves. Even the rest of Canada cannot not take advantage of that. It exports it and then considers giving it back.

Silver would be another idea. Canada produced 1,254,712 kilos or 1,229 tonnes of silver last year.

We have a golden opportunity here. All we have to do is get rid of this punishing excise tax.

[Lloyd St. Amand, Liberal, Brant, ON]

Mr. Speaker, I am pleased to have the opportunity to deliver comments to private member's Bill C-259, which asks hon. members to repeal the excise tax on jewellery.

The first 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 our parliamentary process.

Where private members' bills affect the taxation system, as is the case with 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. Repeal of this tax is being put forward as a means of providing relief for the jewellery industry. Private member's Bill C-259 also makes special note of Canada's status as a diamond producing nation.

I would like to address each of these points in turn, starting with the excise tax on jewellery as a tax that affects small business in Canada.

The government supports small business in Canada and continues to review measures to improve the environment for small businesses to succeed. Indeed, the suggestions from entrepreneurs and small businesses have formed an important part of the budget consultation process over the past recent years.

In order to assist the government in identifying the best options for future consideration 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 business.

Recently, in October 2004, the finance committee delivered its second report highlighting the role of excise duties and taxes as they affect Canadian winemakers, small brewers and jewellers. The committee recommended that tax relief should be provided to each of these industries including a recommendation that the 10% excise tax on jewellery be phased out over a five year period.

At the same time, the finance committee noted that there are many other instances where small businesses would benefit from appropriate tax changes and that the number of worthy proposals far exceeds the capacity of the government to fund these changes in a fiscally responsible manner.

In this context, it is interesting to note that there are currently 15 private members' bills affecting the taxation system that have been tabled in the current session. The estimated fiscal cost of these proposals is as much as $2.5 billion per year. I understand that additional bills are in line to be tabled.

Clearly, with such a great range and breadth of requests for relief, it is incumbent on the government that these proposals be managed in the context of a comprehensive approach to tax policy and fiscal planning. Individual proposals must be evaluated through a process that carefully assesses competing priorities with a view to preserving the fundamental principle of fiscal responsibility.

Against this backdrop, the report from the finance committee will receive very careful consideration, as will other proposals for tax relief that are received during the budget consultation cycle.

I would like to now address Canada's role as a diamond producing nation. The emergence of this industry in Canada has been nothing short of remarkable. With exploration expenditures of more than $1.5 billion over the last 10 years and the establishment of two worldclass mines in the Northwest Territories, Canada now accounts for about 15% of world diamond production and is the third largest producer by value after Russia and Botswana.

Canada has a long tradition of mining and exploration, along with a number of important tax provisions that are designed to recognize the unique operating characteristics of the industry.

These provisions include writeoff for capital costs and the carry forward of resource deductions. Another important feature of the mining taxation regime is the ability of exploration companies to flow expenses that would not otherwise be claimable through to investors in flow-through shares.

The government has recently taken action to improve the taxation of the resource sector, including a number of measures that were announced in budget 2003: reducing the corporate tax rate on resource income; phasing in a new 10% tax credit for exploration and pre-production expenses relating 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, the excise tax on jewellery poses no competitive disadvantage to the Canadian mining industry as exports are not subject to the tax. In sum, the mining taxation regime including the excise tax on jewellery, provides a 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 a total of 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. Budget 2004 for instance announced the following measures: $90 million over five years to support a northern economic development strategy; $3.5 billion over 10 years to clean up contaminated sites, over 60% of which is expected to occur in the north; and $51 million over 10 years to conduct seabed mapping of the Arctic continental shelf.

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 to improve access to telehealth, e-business and distance learning services.

Budget 2003 included other measures which will benefit the north, including $25 million over two years for the aboriginal skills and employment partnership, $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 industry and diamond industry.

Finally, I would be remiss if I did not return briefly to expand on the fundamental issue of fiscal responsibility. I have already commented that private member's Bill C-259 is but one of many bills seeking relief from taxation in specific circumstances. No matter how well intentioned these bills are, the government must nevertheless be mindful of the cumulative fiscal impact, as much as $2.5 billion, and also the inherent difficulties of considering these proposals on an ad hoc or piecemeal basis that does not provide an effective mechanism for assessing and evaluating competing fiscal priorities.

Over the last 10 years the government has pursued an unwavering commitment to budget balance and fiscal prudence within the context of an integrated policy and fiscal framework. The net result has been an impressive record of economic and social progress.

The government has put forward seven consecutive surplus budgets, achieved a $61 billion reduction in the federal debt and an annual saving of $3 billion on debt servicing costs. Cumulative tax reductions of more than $100 billion have been delivered since 1996, with a primary focus on middle and low income families.

The government is not convinced that the repeal of the excise tax on jewellery should be undertaken, at least not on the basis of private member's Bill C-259. Repeal of the tax is one of many competing priorities, particularly as among measures to support small business.

[Guy Côté, Bloc, Portneuf, QC]

Mr. Speaker, jewellery is a powerful symbol that transcends centuries and cultures. When we think of jewels, we think of James Bond in Diamonds are Forever , or Marilyn Monroe singing Diamonds are a girl's best friend . Unfortunately, I do not think today that I would have got far offering Marilyn a $5 diamond.

Canada and Quebec both have their jewellery industries. This is why I will be supporting Bill C-259 of my colleague for Vancouver Island North. In Canada, the jewellery industry has a total worth of $1.2 billion, most of this is concentrated in small and medium businesses. Some 4,500 companies employ a total of 35,000 people. In Quebec there are about 9,000 such workers in 1,200 companies.

As has been pointed out, hon. members need to keep in mind that this excise tax was created in 1918 to help with the war effort. We won that war, but unfortunately that tax, like many others, although meant to be temporary, had a tendency to put down roots and is still with us. I would give just one other example of such a tax: the income tax that was inaugurated during the second world war.

Indeed, at that time, it was a tax on luxury goods, such as jewels and watches. While a $3 item of jewellery was a luxury item in 1918, as was mentioned earlier today, it is no longer the case today.

But what exactly is the excise tax? According to the Excise Tax Act, it is a federal tax collected on goods that are imported, or made or produced in Canada, based on the duty paid value of imports, or the sale price in the case of the item made or produced in Canada.

I will give all three examples, although the bill only applies to jewels. People at that time spoke of 10% of the portion of the selling price or duty paid value over $50 of clocks and watches for household or personal use, except railway men's watches, another example of the anachronism of those regulations, and watches specially designed for the use of the blind.

It is also 10% on all kinds of articles made in whole or in part of ivory, black amber, amber, coral, mother of pearl, natural shells, tortoise shell, jade, onyx, lapis lazuli or other semi-precious stones. Finally, something pertains a little more specifically to us, it is 10% on articles commercially known 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 or serving of food or drink.

Again, there is no denying that this tax no longer plays a role at all. We are talking about $3. I have three children who regularly ask me for some change on the weekend. They come back, indeed, with trinkets and some jewels from the discount store. I am surprised to think that they paid a 10% tax on the value of a good for which they may have paid $4 in the first place.

Worse yet, the cost of administering this tax is not known with certainty. According to the Canada Revenue Agency, its administration would cost a maximum of $1.5 million a year. However, it has to be mentioned that the Canadian Jewellers Association told the Standing Finance Committee that administering this tax would cost somewhere between $7 million and $14 million. I agree that there is a very wide gap, but given the often erroneous forecasts by the finance department, I would be inclined to grant more credibility on this issue to the Canadian Jewellers Association.

It would appear increasingly unjustified to collect such a tax on jewels as luxury items. In the current context, in other words in 2004 and no longer in 1918, other luxury items are not treated this way. One could mention, only as an example, yachts, estates, mink coats, caviar and champagne. Nowadays, they are considered luxury items, but they do not come under the scope of this tax.

Our Liberal colleague took great pleasure in mentioning the whole gamut of measures proposed in various private members' bills which increased the costs for the government. I can understand why the government is concerned to some extent, as this excise tax generates roughly $55 million in its coffers.

If the government is really concerned about how to make up for this loss of income, allow me to remind it that the Minister of Finance is planning to put $31.5 billion in the contingency reserve over the next five years. So, I do not think that a little $55 million will jeopardize the government's balanced budgets.

As part of its representations to the Standing Committee on Finance, the Canadian Jewellers Association pointed out, among other things, that while the jewellery excise tax applies only to imported and national items, Canadian jewellers are facing a relatively higher tax bite for three reasons. First, the duty paid value is generally lower for importers than the sales price of Canadian items of jewellery. Second, the popularity of Internet sales makes it easier to order from abroad jewellery that is then imported into Canada, while avoiding—bearing in mind that this is legal—duty and taxes. Third, the excise tax is in fact a tax on stocks in the sense that it limits the quantity of jewellery that a dealer may stock, display and sell.

I want to reiterate something the Liberal member opposite said in her speech because I thought it was important. She said that in her presentation to the Standing Committee on Finance, the Department of Finance and the Canadian Jewellers Association agreed that the tax favours imported jewellery over domestically manufactured jewellery and that deficiencies in the tax make it prone to tax avoidance and evasion. According to the department, if the jewellery excise tax were not already in place, it is less than certain that Parliament would want to legislate one today. I doubt it as well.

That is why we feel that the federal jewellery excise tax is outdated: it no longer meets any social policy objective nor it have the characteristics a tax should have. What are those characteristics? They are: fairness, effectiveness, ease of administration and transparency.

We believe that this tax has a negative impact on employment and the viability of the jewellery sector. Even the provincial, Quebec, and territorial ministers of mining agree that this tax should be eliminated in order to encourage the retail sale of diamonds.

Representations have been made over the last few years by various stakeholders. In committee, the Bloc Québécois, among others, expressed its position a number of times on this issue. Also, back in 1996, the Standing Committee on Finance proposed various recommendations to eliminate this excise tax, and these recommendations were adopted. I sincerely hope that Bill C-259 will be passed by the House. We will support this legislation.

[Eleni Bakopanos, Liberal, Parliamentary Secretary to the Minister of Social Development (Social Economy)]

Mr. Speaker, Bill C-259 proposes the repeal of the excise tax on jewellery. I am pleased to have the opportunity to respond to this proposal having worked with my colleague, the former parliamentary secretary to the minister of finance, as well as my colleagues on the finance committee and the Liberal caucus on this very important issue.

Jewellery and watch products are the only products that are subject to a hidden luxury tax. I agree with the Canadian Jewellers' Association, with which I have worked with for the last five years, including its former president, Mr. Pierre Akkelian, that the federal government is discriminating against this industry.

Some people believe that we are attempting to remove a luxury tax, yet this tax applies to inexpensive jewellery. Jewellery is not luxury. One in three households buy jewellery and the average household in Canada spends less than $130 annually, the hon. member said $170, on jewellery and watches. The average expenditure in fact for a female is actually $98 and for a male it is $36, according to statistics that were furnished by Ernst and Young.

Four million to five million households bought jewellery in 2001 and most of them are low and middle income households. Low and middle income households account for 50% of the sales of jewellery.

In my culture, being of Greek descent, we always buy jewellery for every newborn child. The grandmother tends to buy jewellery, under $100 normally, and gives this as a gift to the child. Looking at the statistics, it is very strange that we would in fact tax a wedding band that costs sometimes around $100 or $200, perhaps more, and we do not impose an excise tax on the wedding gown that costs maybe $1,000 or $2,000. So there is some incongruity in terms of our tax system.

A single mother, for instance, may buy a pearl necklace. It is important to keep in mind that it is not a luxury tax. It is in fact something that would help low and middle income families. As I said, in my culture, it is an automatic thing to do. We normally buy some jewellery for our children. The average receipt, even from a chain like Birks Canada, is under $400.

On the other hand, other true luxury items, and I have always pointed this out to both the present Minister of Finance and the former ministers of finance, such as yachts, expensive cars, designer clothing are all exempt from this tax. In my opinion this tax should be abolished.

As a starting point, I would note that this private member's bill is one of 15 such bills that have been tabled in the current session, each of which requests some form of tax relief in specific circumstances. The proposed measures cover a broad range of initiatives, such as the income tax treatment of adoption expenses, herbal remedies, and fees paid for participation in physical activity or amateur sport. I understand that additional private members' bills proposing tax relief are waiting to be tabled.

There can be little doubt that these proposals reflect genuine concerns about how Canadians interact with and are affected by the taxation system. At the same time, it must be recognized that each and every one of these proposals carries a cost to the fiscal framework. In fact, the 15 private members' bills amount to $2.5 billion per year.

In addition to the fiscal cost that is associated with these private members' bills, one must also consider the difficulties that they may pose for the integrity and robustness of the taxation system and fiscal framework that the government works under.

Taken in isolation, any one of the private members' bills may raise important issues and express intentions that deserve attention and investigation. I am already on the record that I agree with the removal of this tax.

What we should not lose sight of, however, is the cumulative effect that a series of such bills could have on the taxation system. Individual proposals, even those with a relatively modest fiscal cost, could result in an inequity vis-à-vis other taxpayers who would then need to have their circumstances reviewed. Proposals that are evaluated on a stand-alone basis may have unintended consequences or create difficult precedents. A series of such measures may well increase the complexity also of the taxation system or even create opportunities for tax avoidance and evasion, as the hon. member has stated.

On the basis of these considerations, I would suggest that a certain degree of caution is appropriate on the part of the government in terms of studying this bill lest the government lose sight of its longstanding commitment to fiscal responsibility. If there is something that we have come into government to do, it is fiscal responsibility.

One of the hallmarks of the annual budget process is the consultation that takes place with the government asking Canadians for their input to help determine the difficult choices that must be made among competing priorities. Every year, as the hon. member pointed out, the Canadian Jewellers' Association has come before the finance committee with at least two reports, if I am not mistaken because I am not a member, that have suggested that the government do remove this tax. Both the Liberal members and the chairs, who were Liberal, agreed and there was, I believe, all party agreement.

In its May 5, 2004 appearance before the finance committee, the Canadian Jewellers' Association reiterated its request for a repeal of this tax and raised several concerns about this tax. As the hon. member said, the act's $3 tax threshold suggests that the federal excise tax on jewellery is a remnant from a bygone era, something that was once considered a luxury but is no longer considered a luxury. It is the only remaining luxury tax still levied by the federal government

While taxes on alcohol and tobacco can be justified, rightly or wrongly, for health promotion reasons, there seems to be little justification for the excise tax on jewellery as a luxury tax, since other luxuries, as I mentioned earlier, do not face a similar tax. Furthermore, according to the association, because Canada's tax system largely moved away from excise taxes with the replacement of the complex manufacturers' sales tax with the more transparent GST, the CRA no longer has the ability to administer a tax as complex as the federal excise tax on jewellery.

In its presentation to the committee, the Department of Finance disagreed with the characterization of the federal excise tax on jewellery as a luxury tax, noting that “most jewellery sold in Canada is relatively inexpensive and purchased by average consumers”. The department agreed, however, with the Canadian Jewellers' Association that the tax favours imported jewellery over domestically manufactured jewellery and that deficiencies in the tax “make it prone to tax avoidance and evasion”. The department has agreed with everything that we have said so far. According to the department, if “the jewellery excise tax were not already in place, it is less than certain that Parliament would want to legislate one today”.

I would like to add a point that perhaps was not raised by the hon. member. The president of the World Jewellery Confederation, CIBJO, wrote to the Prime Minister and stated that Canada was the last remaining country to have a jewellery tax. Australia and Russia have removed it because of the diamond industry and we are the last remaining country with this tax. Canada cannot be competitive internationally because of this excise tax. As a member of Parliament, I have had the opportunity to make recommendations to the finance committee. The elimination of the jewellery excise tax is one of the issues that I have raised and supported.

To assist the government in its support for small business, following up on budget 2004, the Minister of Finance wrote to the chair of the finance committee asking that the committee take an active role in assessing the merits of a number of measures proposed to support business. The finance committee has recently delivered its second report dealing with excise duties and taxes as they affect vintners, small brewers and jewellers. The report from the committee recommends some form of tax relief for each of these three industries, including a recommendation to phase out the excise tax on jewellery over a five year period.

In delivering its report, the finance committee is mindful of the need to assess competing priorities and the fact that limited fiscal resources are available, but the committee is making a recommendation to the minister. The government supports small business and will continue to review measures to improve the environment for small business to succeed.

I note that the private member's bill also proposes to eliminate the excise tax on jewellery and makes particular note of Canada's role as a diamond producing nation. I want to put on the record that I agree with the hon. member's statement that Canada is a diamond producing nation and we must be competitive. We are known worldwide as having an exceptionally good diamond industry. I agree with his comments that we will continue to help, especially in aboriginal communities.

Mining exploration in Canada, including diamonds, should be supported by targeted income tax provisions designed to recognize the special operating environment of this capital intensive and high risk industry. Provisions include the write-off for capital costs and the carry forward of resource deductions. Exploration companies also derive considerable benefit from the ability to flow expenses that would not otherwise be claimable within the company to investors in flow through shares.

The government has taken several recent actions to improve the taxation of the resource sector. I will end by saying that I agree with the hon. member. Liberal members and other members of the finance committee have been supportive of the removal of this measure.

[John Duncan, Conservative, Vancouver Island North, BC]

moved that Bill C-259, an act to amend the Excise Tax Act (elimination of excise tax on jewellery), be read the second time and referred to a committee.

Mr. Speaker, Bill C-259 is an act to eliminate the excise tax on jewellery. I think it is instructive to read the brief preamble and the actual legislative change in the bill, but before doing so I would like to say that I have had the bill in the hopper for a number of years. It is finally coming before the House largely as a result of the fact that we have changed the the way we draw bills. I was fortunate enough to win the lottery from the standpoint that my bill was picked sixth in this Parliament for private members' business. I feel quite blessed in that regard.

Bill C-259 is now a timely bill. When I first put it forward, we were dealing with a circumstance where this change had been promoted by the jewellery industry for decades, if not generations.

Now what has really changed is that we have everyone involved, right from the mining industry through to the retailer who has anything to do with diamonds and/or jewellery of all kinds, including costume jewellery. They are all now involved in this. Any item deemed to be jewellery that is sold at retail for more than $3 is subject to this tax.

Since I first introduced the bill in the House two Parliaments ago, Canada has become a diamond powerhouse, so the urgency of removing this anachronism of a tax is greater than it has ever been.

The preamble of the bill states:

Whereas manufacturers currently pay an excise tax of ten per cent on the sale price of jewellery manufactured in Canada and importers currently pay an excise tax of ten per cent on the duty-paid value of imported jewellery;

Whereas this tax was introduced in 1918 in respect of several types of goods considered to be luxury goods but today is the only luxury tax in Canada;

Whereas Canada is the only industrialized nation and the only diamond-producing nation that continues to have a luxury tax on jewellery;

And Whereas, as a result of this tax, diamonds mined in Canada cost more in Canada than anywhere else in the world;

Now, Therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

1. Paragraph 5(c) of Schedule I to the Excise Tax Act is repealed.

That is pretty simple. The preamble actually says a lot.

Here is what Canada is currently doing. If we have an item manufactured outside of 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 outside. This is obviously killing jobs. The excise tax on jewellery is a 10% levy paid by manufacturers on the sale price of items manufactured in Canada and by importers on the duty paid value of imports.

The House of Commons finance committee reported in 1996 that the tax was an anachronism and concluded that it should be abolished. It said the same thing in 2004. The revenue collected from the tax in 2003 was $87 million.

As a result of the growth in the diamond industry, it is now producing government revenues at current rates of about $500 million a year. Canada is currently the third largest manufacturer of diamonds in the world. By the year 2012, Canada is going to be the number one producer in the world. Government revenues from this burgeoning industry are far more than the much smaller revenues that are coming in as a consequence of this unfair and discriminatory tax.

The average Canadian household spends about $170 per year on taxable jewellery, so the average Canadian is affected by this tax.

The threshold for defining taxable jewellery is items that cost more than $3. Therefore, on every jewellery imitation at a Kmart or a Zellers or a Wal-Mart, the tax applies in Canada, but of course that tax does not apply in those same stores in the U.S. We are penalizing ourselves and driving business across the border, where even expensive jewellery can avoid the taxation because people bring it back under the $750 tax exemption for returning residents.

Steven Parker appeared before the finance committee. He is a small business jewellery manufacturer based in Vancouver, whose company employs about 20 full time people making wedding rings, family rings, earrings and necklaces. He had these observations about the tax. He is at a tax disadvantage compared to imported products because the 10% tax applies to all his costs, including marketing, distribution, manufacturing and payroll costs. He can import and have a lower cost base that he applies the 10% tax to; it would be based on landed value only.

Steven Parker and others would manufacture more jewellery in Canada. Two large Canadian jewellery manufacturers relocated outside the country since the 1998 investigation by the finance committee simply because they got tired of waiting for the government to remove this excise tax. They concluded it was not going to happen. The companies were tired of being undercut by manufacturers outside of Canada, so they relocated. This tax is demonstrably killing jobs.

About one-half of the jewellery sold by value in Canada contains diamonds. Saskatchewan will soon be joining the Northwest Territories as a world class diamond producer. Any of the premiers who are involved in jurisdictions where diamond production is either present or about to be are calling for the removal of this tax. It is pre-empting local jewellery manufacture. It is pre-empting tourists buying jewellery made in Canada because they know they can get it cheaper elsewhere.

The Mining Association of Canada said this in May of this year:

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.

One of the key recommendations is “eliminating the federal excise tax on jewellery”. There is virtual unanimity on this subject.

Finally, the application of this tax is an art, not a science. It is applied unevenly. This is very threatening to businesses that are looking for predictability on their taxation.

The finance committee this year heard from Mo Charania of Ottawa, a third generation jeweller with five stores. In 1999 he had an excise audit covering the previous three years. He was assessed over $800,000 in excise tax and was prepared to wrap up his business because that was a bill he could not pay.

Upon investigation of discrepancies and other ways to interpret the tax, especially in terms of how a manufacturer is defined, in his case, because of these discrepancies and differences they were able to reduce his tax bill to $340,000, which meant having to sell only a couple of the five stores in order to pay the bill. I say “only” rather satirically.

Upon further investigation, it became apparent that other companies were not being assessed by the Canada Customs and Revenue Agency because of an administrative policy created outside of the legislation which allows the excise to be paid at a discounted value for multiple items of the same article produced for retail. By application of this formula, it was not an $800,000 bill, nor was it a $340,000 bill. In fact, Mr. Charania would receive a credit.

This tax is incredibly complicated and very subjective in its application. On the part of the business owner, it often requires manual tracking rather than computerized tracking because of these characteristics. Also, it is subject to different opinions of and rulings by different auditors and people within CCRA. That is why CCRA has created a guide on how to apply it that is outside of the legislation. Only some of the businesses to whom this tax is being applied are even aware this guide exists. Obviously not all of the auditors, even with that interpretive document, operate the same way.

It is fairly easy to summarize many of the reasons why we should axe this tax. Consumers are paying a hidden luxury tax for non-luxury items. We can hardly describe a $3 item of costume jewellery as a luxury item.

Canadian jewellery retailers and manufacturers are discriminated against. Canadian jobs are lost. Canada will soon be the largest producer of diamonds in the world and our diamonds will cost more in Canada than anywhere else.

The finance committee has recommended that the tax be abolished.

First nations want the tax abolished; they are important participants in the diamond industry at the mining level and also increasingly in the value added participation.

A really important aspect is that retaining this tax is driving the jewellery industry in Canada underground. The volume of illegal evasion and legal avoidance of the tax is estimated to be in the range of 50% of recorded sales or larger. In 1990 recorded sales were $2.3 billion, just to give a benchmark of what kind of numbers we are talking about. When we get that kind of avoidance or evasion, the GST is also completely avoided, which means that in all likelihood this tax is actually revenue negative for the government and an incredible burden for the business community.

It is time to axe this tax. I have a letter from the member from Oak Ridges completely agreeing with my statement. That is dated January 30 of this year. I have a letter from the chair of the Manitoba caucus completely agreeing with my position. That is dated February 6 of this year. I have a letter from the minister of resources for the Northwest Territories that says the same thing.

My time is up, Mr. Speaker.

[John Duncan, Conservative, Vancouver Island North, BC]

moved for leave to introduce Bill C-259, an act to amend the Excise Tax Act (elimination of excise tax on jewellery).

Madam Speaker, I am pleased to introduce my private member's bill to amend the Excise Tax Act and its regulations to eliminate the excise tax on jewellery.

The excise tax is a luxury tax that unfairly discriminates against the jewellery industry. It is a 10% levy paid by manufacturers on the sale price of items manufactured in Canada and by importers on the duty paid value of imports. It was introduced in 1918, after World War I, as part of a package of excises on items considered to be luxury goods. Today, it is the only remaining luxury tax in Canada.

Canada is the only industrialized nation and the only diamond producing nation that has maintained such a tax. Due to this tax, Canadian mined diamonds cost more in Canada than anywhere else in the world. In addition, the House of Commons finance committee has concluded on more than one occasion that this tax should be abolished.

I encourage the support of all members for my bill.

(Motions deemed adopted, bill read the first time and printed)