Mr. Speaker, I appreciate the opportunity to address the House at third reading of Bill C-26, the tobacco tax amendments act, 2001. The bill would implement the tax elements of the comprehensive new tobacco strategy that was announced on April 5 by the Minister of Finance, the Minister of Health and the solicitor general.
The new strategy is designed to improve the health of Canadians by reducing tobacco consumption, especially among youth, which is one of the government's national health strategies. The new strategy represents the most comprehensive anti-tobacco program in Canadian history.
The strategy includes increased spending on tobacco control programs as well as tobacco tax increases to discourage smoking. Under this strategy, tax increases are linked to a new tobacco tax structure designed to reduce the incentive to smuggle.
The new tobacco tax structure builds on the 1994 national action plan to combat smuggling, which has proven to be very effective in reducing the level of contraband activity and restoring the legitimate market for tobacco sales. The main element of the new tax structure is a replacement of the current tax on exports of tobacco products, which was implemented under the 1994 action plan, with the new two tiered excise tax on exports of Canadian manufactured tobacco products effective April 6, 2001.
Under the new export tax, all exports of Canadians brands of tobacco products would be taxed, thereby reducing the incentive to smuggle exported products back into Canada.
The new tax would be two tiered. A tax of $10 per carton of cigarettes would be imposed on exports up to a threshold of 1.5% of a manufacturer's annual production. A refund of tax would be provided upon proof of payment of foreign taxes. This measure would help avoid double taxation of these products when they enter legitimate foreign markets.
Exports of Canadian tobacco products over the threshold would be subject to the current excise duty on tobacco products and a new excise tax which in total would amount to $22 per carton of cigarettes. There would be no refund on the second tier of export tax.
The new export tax structure would remove any incentive to bring Canadian tobacco products back into Canada illegally and would help set the stage for future tobacco tax increases.
Another element of the new tax structure affects people who travel. The government believes that all Canadian brands of tobacco products should be taxed regardless of where they are sold. Allowing Canadians who travel to continue to have access to low cost, tax free tobacco, either through duty free shops or the traveller's exemption, would be inconsistent with the government's strategy of raising tobacco taxes domestically to achieve the government's health objective of reducing smoking.
With the bill, Canadian tobacco products delivered to duty free shops and ships' stores, both at home and abroad, would be taxed at a rate for cigarettes of $10 per carton effective April 6, 2001. Furthermore, the traveller's allowance is being amended to ensure that returning residents can no longer bring back tax and duty free tobacco products. Effective October 1, 2001, a new duty of $10 per carton of cigarettes would be imposed on these products when they are imported by returning residents.
To ensure that Canadian residents are not subject to double taxation when they return with Canadian tobacco products on which tax has already paid, neither this duty nor regular excise duties and taxes would apply to tobacco products with a Canadian stamp, signifying that excise duties and taxes have already been paid. Non-residents would not be affected by the change to the traveller's exemption.
These measures would help meet the government's goal of reducing tobacco use.
Increasing tobacco taxes is another key component of the new strategy to combat the use of tobacco.
The federal government is increasing taxes, along with the five provinces that followed the federal government's lead when it reduced tobacco taxes in 1994. Effective April 6, 2001, combined federal and provincial taxes will increase by $4 a carton for cigarettes sold in Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island.
The increases would restore federal excise tax rates to a uniform level of $5.35 per carton on cigarettes sold in Nova Scotia, New Brunswick and P.E.I. The amount would be equal to the current federal excise tax rate in the provinces that did not reduce tobacco taxes jointly with the federal government in 1994.
This would be the fifth increase in tobacco taxes since 1994 and would raise federal revenues from tobacco products by $200 million annually.
Bill C-26 would also increase the surtax on the profits of tobacco manufacturers to 50% from 40% effective April 6, 2001. This surtax currently raises about $70 million annually. It would now raise an additional $15 million each year.
Before closing, I want to mention briefly that the government is providing additional resources in the amount of $15 million the first year and $10 million each year thereafter to help federal departments and agencies monitor and assess the effectiveness of these new tax measures in reducing smuggling.
The bill would implement fundamental changes in our tobacco tax system which would enable the government to use higher tobacco taxes to reduce smoking.
The new tobacco tax structure will reduce the incentive to smuggle Canadian-produced tobacco products back into Canada, and the resulting tax increases will help the government to meet its health objectives.
The new structure also sets the stage for future measures.
This new strategy demonstrates the depth of the government's commitment to reducing tobacco use. I encourage my hon. colleagues to give their full support to the bill.