Evidence of meeting #12 for Public Safety and National Security in the 40th Parliament, 3rd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was illegal.
A recording is available from Parliament.
C/Supt Joe Oliver
I could say that due to the fact that we are working very closely with CBSA and the other partners in the area--we've also deployed new technologies to monitor river traffic--the regional task forces all have an impact.
Liberal
Conservative
The Chair Conservative Garry Breitkreuz
We will have to wrap it up there. I'm sorry.
Mr. McColeman, please.
Conservative
Phil McColeman Conservative Brant, ON
Thank you for coming today and giving us some of the background here and your expertise on this.
I really would like to ask a couple of questions relating to the revenue side of this equation. I suppose the first question is a lead-in to the revenue side. Are you aware in your investigations of what I will call “hybrid operators”? They would be people who have a legal licence and the tools to manufacture cigarettes, and perhaps 60% of their cigarettes are manufactured legally, but maybe another 40% go out the back door as cash business.
Are you aware of that, Mr. Oliver?
Conservative
Phil McColeman Conservative Brant, ON
In your enforcement and other activities, are you aware of manufacturers who are operating legally, because they have all the licences and they submit revenue to the Canada Revenue Agency, etc., but a percentage of their business is actually in cash, beyond their legal manufacturing?
Conservative
Phil McColeman Conservative Brant, ON
Do you know if your investigators follow that trend anywhere in the country?
C/Supt Joe Oliver
What we are mostly seeing is illicit manufacturing and product that is smuggled into Canada.
C/Supt Joe Oliver
Yes.
We have in the past targeted operations, with the support of the Canada Revenue Agency, at licensed manufacturers who run six or eight hours of legitimate operations and then do nighttime operations. Those manufacturers were disrupted in the past.
Conservative
Phil McColeman Conservative Brant, ON
Okay, so I suppose the question should really have been posed to the revenue guys.
Do you monitor that situation very closely?
Director General, Excise and GST/HST Ruling Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
We do monitor it very closely. From a compliance perspective, we do audit our licensees. We currently have 33 licensees across the country. We do a full audit of them every year, and we also have regulatory reviews, meaning that we visit them a number of times. You can be there every day for a number of issues, verifying inventory or sealing a load that needs to be exported. We are there constantly. Certainly our audit results have not suggested that 40% of it is cash business. Our audits certainly include an analysis of all the inputs that are bought, in terms of manufacturing the final product. We don't see that diversion.
Conservative
Phil McColeman Conservative Brant, ON
Having said that, I think it's easy to envisage how all of it could be a cash business: you pay cash for your inputs and you receive cash when the cigarettes go out the back door.
I'm glad you've shared the monitoring side of that.
On the revenue side, have you seen any measurable increases or decreases in revenue on tobacco sales over the last number of years?
Director General, Excise and GST/HST Ruling Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
We have some numbers here. If you look at 2007-08, I think the total revenue collected by CBSA and CRA together was in the area of $2.7 billion. For 2008-09, it was $2.5 billion. But we also have anecdotal evidence. If you recall, in August 2008, there was a tobacco buyout program by Agriculture Canada, which ended a lot of the quota systems that existed at the time. They put in a new licensing regime for tobacco growers in Ontario, because tobacco growers are concentrated in Ontario.
Conservative
Director General, Excise and GST/HST Ruling Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Oh, okay. The regime now, as I understand it, is such that to get a quota or a licence to grow tobacco, you need to go to this organization or licensing group and show that you have contracts with legitimate tobacco producers.
We have been told anecdotally that this particular initiative has meant that legal sales of tobacco have increased significantly, coupled with the border issues and the Americans raising their taxes, which provides an additional opportunity for organized crime to make more money. As long as the gap gets bigger, it's a bigger opportunity for them. So we've been told by specific manufacturers that their revenues are up significantly. Philip Morris issued a report last week, I believe, that their sales last year went up 10%.
So there is some encouraging anecdotal evidence that we see, in terms of revenues.
Conservative
Phil McColeman Conservative Brant, ON
Would you expect then to see the revenue at your agency increase as a result of that?
Director General, Excise and GST/HST Ruling Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It depends. If smoking continues to go down, the revenues will not increase, but if smoking remains the same, and if the measures to fight contraband tobacco are such that whoever is buying contraband tobacco does not stop smoking but shifts to a legal product, perhaps our revenues could increase. But those analyses will be done in the future.
