Evidence of meeting #28 for Public Safety and National Security in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cbsa.
A recording is available from Parliament.
4:50 p.m.
Director, Borders Intelligence Division, Intelligence Directorate, Enforcement Branch, Canada Border Services Agency
The CBSA has a counterfeit detection--
4:50 p.m.
Conservative
Rick Norlock Conservative Northumberland—Quinte West, ON
If you're going to do the analysis, maybe you can share what some of those analyses have shown.
4:50 p.m.
Director, Borders Intelligence Division, Intelligence Directorate, Enforcement Branch, Canada Border Services Agency
For the agency's purposes, we've developed a counterfeit detection kit. When we discover tobacco, we can test it and determine if it is counterfeit or not. We do share that kit with both our domestic and international partners.
4:50 p.m.
Conservative
Rick Norlock Conservative Northumberland—Quinte West, ON
If you came across cigarettes that could be killing people, what would you do?
4:50 p.m.
Director, Borders Intelligence Division, Intelligence Directorate, Enforcement Branch, Canada Border Services Agency
We can't go to that level; it would obviously have to be sent to a lab. But for the purposes of doing a quick determination, we have a kit available to do that sort of analysis.
4:50 p.m.
Conservative
Rick Norlock Conservative Northumberland—Quinte West, ON
I think there needs to be a message from somebody. I guess we had better find out from this committee, and we need to be able to determine it. It's more than a tax issue. I know we're dealing with issues and we're purposely not dealing with the health issue. I think the elephant is in the room. If you're smoking something that can kill you because it's been sprayed with some terrible chemical or because somebody is cutting it with some terrible material that could cause you more harm than just the tobacco itself--that is part of the reason I asked the question. Consumers who buy the cheap cigarettes may enjoy a cheap cigarette, but they could be getting those extra nails in the coffin a little more quickly. That's why I asked about the analysis and what the difference was.
4:50 p.m.
Liberal
The Vice-Chair Liberal Roy Cullen
Thank you, Mr. Norlock.
In a moment we're going to go to a fourth round, but with committee members' indulgence, I have a question or two myself.
Mr. Trueman has been sitting there like the Maytag repairman. I know that Finance Canada plays an integral role in the policy architecture around these sorts of issues.
Mr. Trueman, you heard the presentation from the Canada Revenue Agency. They talk about this $850 million decline and then they say this relates specifically to legitimate tobacco manufacturing production. I'm assuming that's because there might be unlicensed, illegitimate ones that existed before that period and still exist. They're not really commenting on contraband, but just through the moccasin telegraph I've heard numbers. I know Finance has some practices, but I've heard there might be forgone revenues of $1 billion to $3 billion a year as a result of contraband.
Do you have any estimates, sir?
May 7th, 2008 / 4:50 p.m.
Geoff Trueman Chief, Air Travelers Security Charge, Sales Tax Division, Tax Policy Branch, Department of Finance
We do not have an estimate at this time of federal revenue losses as a result of contraband activity. Certainly what you can see in the public accounts is a decline. It hit a peak of $3.5 billion in 2003-04, and then over the next four years we've seen it decline to roughly $2.5 billion. The question there is, is that decline attributable, certainly some part of it, to contraband activity and is some of it attributable to long-term declines in smoking, consistent with what we see in consumption surveys?
Trying to evaluate both those items is a difficult process. By its very nature, contraband activity is underground, black market activity. While we have reports on seizures, we can't necessarily extrapolate and come up with a level of contraband activity that would be reliable or verifiable. Similarly on the consumption side, we can look at long-term trends, but again, survey data will not always be 100% accurate, by its very nature.
I think what we've tried to do is monitor the contraband situation, look at the type of contraband that is occurring, and make changes to the excise tax structure that reflect that and that give the compliance and enforcement agencies the tools they need.
4:55 p.m.
Liberal
The Vice-Chair Liberal Roy Cullen
With respect, sir, to the reporting period in this CRA brief, from 2003-04 to 2006-07, if you have unlicensed, illegal manufacturing outside those periods then they'd clearly be part of that contraband equation. I know certainly from my experience that the Minister of Finance would sometimes ask the officials how much revenue is forgone. You're saying that Finance Canada has not done that recently?
4:55 p.m.
Chief, Air Travelers Security Charge, Sales Tax Division, Tax Policy Branch, Department of Finance
We have not done that in my time on the file, no.
4:55 p.m.
Liberal
The Vice-Chair Liberal Roy Cullen
I have a quick question.
Mr. McLester, we talked about tracking the tobacco equipment, which you have the mandate and the authority to do now. There was a question from a couple of members about filters and papers. You don't have the mandate now. I gather that could be changed legislatively, if I understood you correctly. You made a comment that papers and filters could be used for a variety of purposes. That puzzled me, because if I was looking at the market for cigarette papers and filters, I can think of small tobacconists--because some people still roll their own--I can think of legitimate cigarette manufacturers, and I can think of unlicensed and illegal. Beyond that, what would these papers and filters be used for?
4:55 p.m.
Director, Excise Duties and Taxes Division, Excise and GST/HST Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
I don't want to put myself forward as an expert with respect to these types of materials, Mr. Chair, but we have investigated this a little bit and we are aware that acetate tow, which is used for filters in tobacco products, don't come as filters, they come in huge packages that could be used and cut to any length, any size, and used for other filter media. Beyond that, of course, as you mentioned, we do not have these goods as our responsibility under the Excise Act, 2001, as we do with raw leaf and now with equipment, if this passed.
I can't say it would lead us nowhere or that it would be impossible, but from what we have gleaned from our discussions, the goods are multi-use.
4:55 p.m.
NDP
Penny Priddy NDP Surrey North, BC
Thank you, Mr. Chair.
I had to check a number because I wasn't sure how many there were in B.C. Maybe somebody could have a quick conversation with me about tax treaties. I suppose that's probably Revenue Canada. I think there are 11 bands in British Columbia that have a tax treaty with the federal government, where they charge the additional first nations tax. They keep it for development. It's equal to the GST, which isn't charged on it anyway. It seems to be having success in British Columbia, and I wonder if people could comment on the potential of that for use in other places.
4:55 p.m.
Chief, Air Travelers Security Charge, Sales Tax Division, Tax Policy Branch, Department of Finance
Actually, my colleague Ken Medd is here. He deals exclusively in that FNGST, working with first nations governments, so I'll pass to him for that issue.
4:55 p.m.
NDP
4:55 p.m.
Chief, Air Travelers Security Charge, Sales Tax Division, Tax Policy Branch, Department of Finance
Not at all.
4:55 p.m.
Liberal
The Vice-Chair Liberal Roy Cullen
Sir, could you identify yourself, your position title and department?
5 p.m.
Ken Medd Senior Tax Policy Officer, Aboriginal Tax Policy Section, Department of Finance
I'd be happy to.
My name is Ken Medd. I work for the aboriginal tax policy section of the Department of Finance.
Our unit is quite a small unit. We're responsible for negotiating tax-related provisions of treaties and land claims and self-government agreements. My work for the past few years has been focused on first nations goods and services tax agreements.
5 p.m.
NDP
Penny Priddy NDP Surrey North, BC
My question was, do the tax treaties I've seen, which I think amount to only about 11 but nevertheless seem to be successful--which is the charging of a first nations tax instead of GST, keeping it for development--do they have some potential for extension?
5 p.m.
Senior Tax Policy Officer, Aboriginal Tax Policy Section, Department of Finance
Yes, I believe so.
The origins of this set of arrangements we have with first nations goes back to about 1997, where individual first nations came forward and said they would like to start charging their own sales tax on sales on reserve of, generally, tobacco or fuel products or alcohol. Beginning in 2003, we put in place federal legislation to support a first nations goods and services tax, whereby first nations could enact laws imposing a tax exactly like the GST on their lands in connection with all sales of taxable products under the GST that take place on reserve.
Currently we have 19 of those arrangements in place, and we're expecting to put another one in place with another British Columbia first nation very shortly. We have a number of them in place with self-governing first nations in the Yukon, Northwest Territories, and Newfoundland and Labrador.
I do see potential here. There is a revenue potential for the first nations that choose to enact those laws and enter into an agreement with Canada for implementing a first nations goods and services tax. From a tax policy perspective, we also achieve somewhat more of a uniform tax landscape across the country where there aren't these pockets of different tax treatment.
5 p.m.
NDP
5 p.m.
Senior Tax Policy Officer, Aboriginal Tax Policy Section, Department of Finance
Yes, there has been interest outside of Yukon and the west. Just let me check here. We have negotiations that are under way now with some first nations other than B.C. These arrangements are available both for self-governing first nations and for Indian bands that continue to operate primarily under the Indian Act. All of those arrangements with Indian Act bands are in British Columbia at the moment, but we do have negotiations at various stages with first nations in other parts of Canada.
5 p.m.
NDP