Good afternoon, and thank you, Mr. Chairman and members of the committee, for the opportunity to appear today and explain Canada Revenue Agency's role in this file under discussion.
With me today is Phil McLester, who is the director of the excise duties and taxes division.
The CRA is responsible for the administration of the Excise Act of 2001, which establishes the framework for licensing tobacco manufacturers, regulating tobacco products in Canada, and applying excise duties to tobacco products manufactured in Canada or imported. Our focus is maintaining compliance in the legal tobacco market. To this end, we interpret the act and its regulations, and we create policies and other administrative procedures.
On the tobacco file, one of our important roles is the issuance and renewal of tobacco manufacturing licences. Without a tobacco licence, the company does not have the right to manufacture tobacco products, will not have legal access to raw leaf tobacco, and cannot import tobacco without the imposition of excise duty. The licensing function can be described as an important first step in gaining compliance with the legislation.
The act and the regulations respecting excise licences and registrations contain strict requirements for obtaining and maintaining a licence, and these are applied diligently to all applicants. Prior to issuing a licence, the CRA undertakes criminal background checks, ensures a history of compliance with federal tax legislation, contacts provincial authorities to verify compliance with their legislation, and verifies the financial and economic viability of the enterprise.
An important criterion for obtaining and maintaining a licence is that an applicant or licensee must comply with any act of Parliament or of the legislature of a province respecting taxation of tobacco or controlled items. The CRA consults with the province in which an applicant is located. The information provided is evaluated, along with all the information available when assessing the issuance of a licence, or when considering possible suspension or revocation of a licence. In addition, the CRA advises licensees of the need to comply with provincial permit requirements by way of outreach packages, licensing notifications, and visits to manufacturing premises.
A licence has a maximum duration of two years. To be renewed, it must pass through the same stringent requirements noted above. Once a licence has been issued, if the licensee fails to meet the conditions of the licence—e.g., maintaining satisfactory security or complying with the act—a licence may be suspended or revoked. We have suspended and revoked licences when licensing conditions are not met. There are currently 46 tobacco licences in Canada. While we do not specifically track or report on the locations or premises associated with these licences, I can say that there are currently 14 tobacco licensees on first nations reserves.
The CRA undertakes numerous activities to ensure that licensees are in compliance with the legislation, including audits to confirm revenue and regulatory activities to ensure compliance with the control of tobacco products. There are many examples of this activity, such as reviewing internal controls, touring premises, inventory verifications, stamping and marking verification, etc.
In respect of the recent history of federal excise revenues collected on tobacco products, it is public information that over the four years from 2003-04 to 2006-07, federal excise revenues have declined from $3.35 billion to slightly under $2.5 billion. This relates specifically to legitimate tobacco manufacturing production.
Budget 2005 announced funding for a number of tobacco compliance activities, and the CRA has used this funding to advance its tobacco compliance strategy. This encompasses enhanced audits of tobacco manufacturers, tobacco grower outreach and compliance monitoring, and the establishment of an enhanced stamping regime.
We have implemented the first two elements of our strategy. As well, we have completed contracting for a new tobacco stamp that will contain state-of-the-art overt and covert markings to combat counterfeiting and discourage the illicit manufacture or under-reporting of tobacco production. The new stamp will be another tool in the arsenal of federal and provincial enforcement agencies to address a portion of the contraband tobacco challenge.
Government has long recognized that the subject of legislative compliance and contraband tobacco is far-reaching and complex, involving the cooperation of several partner government organizations. To ensure that Canada's tobacco tax laws are effectively applied, CRA works with the RCMP, CBSA, Finance Canada, and the provinces and territories. In terms of our overall administrative role, we also work with Health Canada and Agriculture and Agri-Food Canada. In fact, the CRA participates in numerous fora with provincial, national, and international representation, including the tobacco diversion workshop mentioned by my RCMP colleague. There are a number of other ones.
In terms of our future activities, the CRA will continue to advance our new enhanced stamping regime; support our partners in combating contraband tobacco products; advance collaboration with band councils and manufacturers in the tobacco industry; participate in the World Health Organization Framework Convention on Tobacco Control's intergovernmental negotiating body toward the drafting of an international protocol on illicit trade in tobacco products; and defend, in collaboration with Justice Canada, Canada's interests before the courts to ensure that revenue is protected and compliance objectives are met and maintained.
Mr. Chairman, thank you for this opportunity to speak to you today. We would be pleased to answer any questions you may have.