moved that Bill C-32, an act to amend the Excise Tax Act, the Excise Act and the Income Tax Act, be read the third time and passed.
Mr. Speaker, Bill C-32 contains the legislative provisions to implement a number of excise and income tax changes announced over the past four months. Most of these proposals relate to the tobacco tax changes that were announced by the Prime Minister on February 8, 1994, as part of the national action plan on smuggling.
Other proposals concern the air transportation tax and the goods and services tax and were announced in the federal budget of February 22, 1994.
Hon. members are no doubt aware of the dramatic growth in tobacco smuggling over the past few years and the profound impact the trade in contraband tobacco products has had on Canadian society. As contraband tobacco products began to assume a rapidly increasingly share of the domestic tobacco market, the government suffered a sharp decline in tobacco tax revenues affecting its ability to deliver much needed programs.
Legitimate wholesalers and retailers also suffered a substantial decline in their ongoing business interests as sales of legal tax and duty paid tobacco products underwent a precipitous decline.
Equally troubling and of great concern to all Canadians was the climate of increased lawlessness as the organized criminal network dominated the contraband tobacco trade and funnelled its illegal profits into further criminal activity.
Finally, the availability of cheap contraband tobacco products was undermining the government's health policy objectives of reducing tobacco consumption, particularly among young people.
Without strong balanced action from the government the level of smuggling would have continued to increase and with the resulting costs accruing to government business and citizens alike. This concern was the basis for the national action plan on smuggling announced by the Prime Minister on February 8, 1994.
At the forefront of this plan, the government allocated significant additional resources to both the RCMP and Canada Customs to increase their enforcement efforts aimed at disrupting the contraband trade in tobacco and other products.
To facilitate this increased enforcement and reduce the demand for contraband tobacco products, the government also undertook reductions in the rate of excise tax applicable to tobacco products.
Some hon. members have questioned why the government chose to proceed further to reduce tobacco taxes rather than rely solely on increased enforcement measures. It should be remembered that significant new and enhanced enforcement measures were introduced in 1992 when the government of the day announced tighter controls on the distribution and sale of tax free tobacco products in Canada, significantly higher penalties for persons caught smuggling, new proceeds of crime provisions and the allocation of additional resources to RCMP and Canada Customs to strengthen their enforcement efforts.
While these measures assisted the government in its fight against tobacco smuggling, they were not sufficient to bring the problem under control. The price differential between Canadian tax paid tobacco products and contraband tobacco products was such that the profits from smuggling far outweighed the associated risks. As a result, smuggling continued to grow in 1992 and 1993, increasing its share of the Canadian tobacco market from about 15 per cent in 1991 to an astounding 40 per cent at the beginning of this year.
Given this climate of persistent and increased smuggling, the government considered it essential to introduce a comprehensive national action plan including not only new enforcement initiatives but also a reduction in tobacco taxes. To weaken demand for contraband tobacco products in all parts of the country, the government undertook a national $5 reduction in the rates of excise tax on tobacco products.
To allow greater tax reductions in areas where smuggling was more deeply rooted, the government also offered to match provincial tax reductions in excess of the $5 up to a maximum total federal tax reduction of $10.
At the same time, the government was also concerned that tobacco corporations not derive any benefit from the reduction in tobacco taxes thus a new health promotion surtax was imposed on corporate profits from tobacco manufacturing and processing with the funds generated by the surtax being used to
support the largest anti-smoking campaign in the history of Canada.
Finally, to address the role played by export shipments in the contraband tobacco trade, the government reimposed an excise tax on exported tobacco products. The excise tax is designed to ensure that exports of tobacco products will be subject to closer control while also providing manufacturers with certain limited exemptions in respect of legitimate export shipments intended for bona fide consumption outside Canada.
Taken together, these measures form a comprehensive plan to attack tobacco smuggling on all levels. Enforcement alone could never solve the problem. The profits to be made from smuggling and the savings to consumers purchasing contraband products would remain.
By attacking the problem on all fronts, the government has taken strong action toward eliminating tobacco smuggling as a significant national problem. In addition to these changes, the legislation also contains a number of related measures to ensure the effectiveness of a national action plan on smuggling.
Full inventory rebates will be provided to all wholesalers and retailers in respect of the national $5 tax reduction providing complete reimbursement for tax paid inventories of cigarettes, tobacco sticks and fine cut tobacco held as of midnight February 8, 1994.
The bill also authorizes the payment of partial inventory rebates where federal excise taxes are further reduced to match provincial tobacco tax reductions. Wholesalers and retailers can apply for the additional rebate in respect of their inventories of cigarettes in excess of a certain threshold amount held as of the effective date of matching a federal excise tax reduction.
Some hon. members have asked why the government is not providing wholesalers and retailers with complete coverage for their inventories of tobacco products. I would point out that the inventory rebate program represents a significant expenditure on the part of the government and is just one component of the total fiscal cost that will be borne by the government in confronting the smuggling problem and restoring the legal tax paid market for tobacco products.
The inventory rebate program is designed to provide wholesalers and retailers with a significant measure of financial compensation. It ensures that the tobacco tax reductions do not have too large an impact on any one person.
Wholesalers and retailers have been major beneficiaries of the government's national action plan on smuggling. They will continue to benefit from the restoration of the legal tax paid market. Before any amounts can be paid under the rebate system however this legislation must receive royal assent. This is one of the reasons we are attaching such a high priority to Bill C-32.
Finally, to assist federal enforcement agencies and provinces to control the potential for interprovincial diversion of tobacco products, Bill C-32 contains new liability and offence provisions. An additional federal excise tax will be imposed on a wholesaler or a retailer in respect of any sale of marked tobacco products to a person in another province.
The legislation also makes it an offence subject to a fine for any person who sells or offers for sale tobacco products marked for consumption in one province to a consumer located in another province. The basic design of these provisions is to ensure that tobacco products marked for sale in a particular province are restricted to personal consumption in that province and are not diverted to another province.
While the collection of the additional federal excise tax can be enforced immediately, the offences provision cannot come into force until such time as this bill receives royal assent.
In conclusion, I would like to emphasize the importance of the provisions contained in Bill C-32. The proposed excise and income tax changes are an integral part of the government's action plan to combat smuggling. Together with increased enforcement these measures will make a very significant contribution to halting the contraband tobacco trade.
I urge all my colleagues to give speedy passage to this bill.