Mr. Speaker, I appreciate the opportunity to present Bill C-47, an act respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores, for second reading today.
Bill C-47 introduces a modern, legislative and administrative framework for the taxation of spirits, wine and tobacco products under a new Excise Act. This new framework does not address substantive tax rate or base matters for alcohol and tobacco products. Bill C-47 also implements other excise measures, specifically the changes to ships' stores provisions that were announced on September 27, 2001, and the tobacco tax increases announced on November 1, 2001.
Before elaborating on the details of the new Excise Act, I want to take a moment and provide hon. members with some background that will help put these new measures in context. The Excise Act is the foundation of the federal commodity taxation system for alcohol and tobacco products. It imposes excise duties on spirits, beer and tobacco products manufactured in Canada. It includes extensive control provisions relating to the production and the distribution of these products. Duties equivalent to the excise duties on domestically produced goods are levied on imported spirits, beer and tobacco products under the customs tariff. As well, excise taxes are imposed on domestic and imported wine and tobacco products under the Excise Tax Act.
Historically, commodity taxes on specific goods have been an important element of Canada's federal tax system. In the first half of the 1900s they accounted for as much as 25% of federal revenues. While their relative importance has declined in recent years, these levies are still significant. In 2000-01, duties on alcohol and tobacco products raised about $3.4 billion in federal revenues.
Why, then, is this bill needed? Quite simply because the current Excise Act is archaic. It is one of the oldest taxing statutes in Canada, existing in previous configurations before Confederation with parts of the present act flowing from the consolidated inland revenue act enacted in the 1800s. While periodically amendments have dealt with specific issues, the Excise Act has never before been the subject of an indepth review and revision.
Let me provide a few illustrations of the archaic provisions in the existing Excise Act. The existing act allows excise officers to enter premises at any time and break up or remove parts of the premises such as the walls, ceilings and doors. Taxpayers who suffer losses as a result of the actions of excise officers are only entitled to damages of 20¢. Any person found guilty of possessing or selling alcohol in contravention of the Excise Act could face up to 12 months of hard labour.
Licensed producers are prohibited from operating at night without prior authorization from the Canada Customs and Revenue Agency, CCRA, and must comply with the requirement to have an excise officer present at the licensee's expense. Licensees who intend to make any alterations to their premises are required to provide the CCRA with a detailed description of the proposed alterations and, following the completion of the work, with plans of the work. Pipes that are used in a distillery to convey spirits are required to be coloured blue and those used for beer are to be coloured green. Licensed producers are prohibited from erasing any words or figures from their books and records. The only way changes to a licensee's books may be made is by crossing out words or figures with ink in such a way as to ensure that they remain legible.
These are but a few examples of how outdated the current Excise Act is.
In recent years, both industry and government became increasingly aware of the need for a substantive review and modernization of the excise framework. In particular, industry has undertaken significant development with respect to new technology, product marketing and distribution initiatives which the existing Excise Act does not accommodate adequately.
Other factors also pointed to the need for review of the framework. For example, there is now greater foreign competition in the Canadian markets for beverage and non-beverage alcohol. However, the pervasive controls mandated by the Excise Act impose high compliance costs on industry and impair the competitiveness of Canadian producers. The Excise Act also has become increasingly difficult to administer and impedes CCRA's ability to fully adopt modern administrative practices. In addition, there was a need to address recent wine contraband pressures that have arisen in part because wine, which currently is taxed under the Excise Tax Act, has no substantive controls placed over its production and possession.
Finally, there are complexities and inefficiencies to both government and industry because tobacco manufactured in Canada currently is taxed under both the Excise Act and the Excise Tax Act. As a result, the government recognized that a revised excise framework was in everyone's best interests. A modern framework would generate stable and secure revenues and also address contraband pressures. Moreover, this could be achieved without imposing unrealistic or unnecessary costs and administrative burdens on industry participants.
Prompted by the need to update the Excise Act, the Department of Finance and the Canada Customs and Revenue Agency jointly released a discussion paper on the Excise Act review in 1997. This paper outlined a proposal for a revised legislative and administrative federal framework for the taxation of alcohol and tobacco products.
The review was guided by the following three objectives: first, to promote a modern legislative framework for a simpler and more certain administrative system that recognizes current industry practices; second, to facilitate greater efficiency and fairness for all parties, leading to an improved administration and reduced compliance cost; and third, to ensure the continued protection of federal excise revenues.
Building on this discussion paper proposal, the government followed up in 1999 with the release of draft legislation and regulations. Public consultations, an important element in any federal policy initiative of this kind, formed an integral part of the review. With the discussion paper and the draft legislation regulations as a basis, extensive consultations were conducted with affected industry groups and businesses, provincial governments, liquor boards, various federal departments, the Royal Canadian Mounted Police and other enforcement agencies. Refinements were made to the original review proposals with the result that Bill C-47 has been given broad support among the spirits, wine and tobacco sectors, the provincial liquor boards and the law enforcement agencies.
Before discussing the new legislative framework, I should mention that the bill does not address beer, which, with the concurrence of the brewing industry, will remain under the existing Excise Act for the time being.
While time unfortunately precludes me from reviewing all the measures in Bill C-47, I would like to provide the House with a brief overview of some of the key components. Bill C-47 introduces core elements of the framework outlined in the discussion paper issued by the government in 1997, including: maintaining the imposition of duty at the time of production for spirits; the replacement of an excise levy at the time of sale for wine with a production levy at an equivalent rate; the deferral of the payment of duties for spirits and wine to the wholesale level; and the introduction of modern collection tools. At the same time, Bill C-47 helps to address the government's ongoing concern about the smuggling of alcohol.
Let me be more specific. A key element of the framework is the maintenance of the production levy, which as I mentioned, is extended to wine in the bill. The production levy incorporates strict controls on the production, importation, possession and use of non duty paid alcohol and significant penalties for breaking the law.
At the same time the bill removes the current outdated and onerous controls on premises and equipment which have hindered the spirits industry operating under the Excise Act. This means that businesses will now have greater flexibility to organize their commercial affairs to respond more quickly to market changes. Anyone producing or packaging spirits or wine will be required to have a spirits or wine licence.
Although vintners must be licensed under the new framework, the current small manufacturers tax exemption will be maintained for wine produced by very small vintners, especially vintners with sales of wine not exceeding $50,000 in the previous 12 months. As well, individuals who produce wine for their personal use will continue to be exempt from having to be licensed and pay duty.
Bill C-47 also proposes a new warehousing regime for deferring duty on packaged alcohol that will place domestic and imported packaged alcohol on an equal footing. As well it will accommodate the privatization initiatives of some provinces for the warehousing of liquor.
As under the existing Excise Act, comprehensive controls will exist on non-beverage uses of spirits and wine to protect federal excise revenues derived from beverage alcohol. These controls include the licensing or registration of users, the approval of product formulations for which spirits and wine may be used without the payment of duty, and the specification of denaturing standards.
The bill also eliminates the current nominal rates of duty that apply to certain non-beverage uses of spirits, such as spirits used in the manufacture of pharmaceutical goods. These nominal duties are inconsistent and erroneous in application and disadvantage domestic products manufactured with spirits vis-à-vis similar foreign products entering Canada.
While the fundamental controls over non-beverage alcohol remain unchanged from the existing excise framework, Bill C-47 contains new measures on imported industrial alcohol to ensure the integrity of the domestic alcohol market and the production of federal revenues. In particular there will be a requirement for imported denatured industrial alcohol to be sampled and tested to ensure it meets Canadian denaturing standards.
The comprehensive controls on the possession, distribution and use of non duty paid spirits and wine will also significantly improve the offence structure and enforcement function in regard to alcohol.
Finally, fines for alcohol related offences will be substantially increased. Proceeds of crime provisions will now cover serious alcohol offences.
Turning now to some of the tobacco provisions in the bill, the new legislative framework in Bill C-47 merges the current excise duty and excise tax on tobacco products, other than cigars, in a single production levy. This will result in improved administration and reduced compliance costs for the industry.
The new legislative framework incorporates the revised tobacco tax structure introduced in April 2001 and previously enacted, which formed part of the government's comprehensive strategy to reduce tobacco consumption.
My hon. colleagues will recall that the tobacco tax structure now includes: an excise tax on imported manufactured tobacco sold in duty free shops; a customs duty on manufactured tobacco imported by returning residents under the terms of the travellers allowance; and a revised excise tax and duty structure for exported domestic manufactured tobacco.
While the measures in Bill C-47 will provide a more streamlined framework for the taxation of tobacco, I want to assure the House that the fundamental controls over tobacco under the existing excise framework will be maintained. In particular, the current stamping and marketing requirements for tobacco products will continue to apply and will play a key role in the enforcement of tobacco provisions in the bill.
In addition, the legislation incorporates the current offence provisions relating to the illegal production, possession or sale of contraband tobacco which have proven to be effective.
The new excise framework also contains a number of administrative measures that will enable the Canada Customs and Revenue Agency to improve its level of service to clients and its overall administration of the excise framework for alcohol and tobacco products.
These measures, which are consistent with CCRA's integrated accounting initiative, include: a duty remittance and return structure harmonized with commercial accounting periods and the goods and services tax and harmonized sales tax, GST/HST, legislation; new assessment and appeal provisions similar to those under the GST/HST legislation; and a range of modern collection mechanisms, such as certificates of default, garnishment, seizure and the sale of goods and director liability.
In addition, the bill provides for a range of administrative penalties that will be imposed on licensees, registrants and others dealing with excisable goods who fail to comply with particular requirements under the law.
The new legislative framework will ensure that the excise duties on alcohol and tobacco are collected in a more effective and efficient manner. As well, it provides an array of modern administrative and enforcement tools for ensuring compliance with the proposed statute.
In summary, the new legislative and administrative framework for taxation of spirits, wine and tobacco products will provide: a simple and more certain taxation structure; equal treatment for all parties; improved administration and lower compliance costs; greater flexibility for businesses to organize their commercial affairs; and enhanced protection of excise revenues.
In the few remaining minutes, I will briefly discuss three additional measures in Bill C-47.
The first concerns changes to the ships' stores provisions under the customs and excise legislation. As my hon. colleagues know, ships' stores provisions grant relief from duties and taxes for goods used on board ships and aircraft in international service.
These changes, which were announced on September 27, 2001, respond to a recent Federal Court of Appeal decision that ships' stores regulations went beyond the scope of their enabling legislation. Bill C-47 provides the proper legislative authority for these regulations. The changes will take effect on the date the provisions identified by the court were incorporated into the regulations.
A second measure implements a temporary fuel tax rebate program for certain ships that will no longer qualify for ships' stores relief as a result of the proposed amendments to ships' stores regulations effective June 1, 2002.
Ships that would be entitled to this rebate are commercial tugs, ferries and passenger ships travelling on the Great Lakes and the lower St. Lawrence River that are not engaged in international trade. This rebate will apply on fuel purchased between June 1, 2002 and December 31, 2004. It is intended to provide affected operators with adequate time to make the transition to the new ships' stores rules.
The third measure implements the federal tax increases on tobacco products that were announced on November 1, 2001. Like the April 2001 measures I referred to earlier, this tobacco tax increase is part of the government's comprehensive strategy to improve the health of Canadians by discouraging tobacco consumption.
These increases re-establish a uniform federal tax rate for cigarettes across the country and amount to $2 per carton of cigarettes for sale in Quebec, $1.60 in Ontario and $1.50 in the rest of Canada. The increases are co-ordinated with provincial tobacco tax increases.
The government has always said that it would continue to work toward restoring tobacco taxes to pre-1994 levels as quickly as possible. The measures in Bill C-47 are one more step in the process of restoring tobacco tax rates in ways that will minimize the risk of renewed contraband activity.
In closing, let me say that the three elements of the bill all deserve to be passed without delay. It makes sense to implement a new Excise Act for addressing a longstanding need of both industry and government to rationalize the ships' stores provisions and to approve the tobacco tax increases for reducing tobacco consumption.
I urge all hon. members to support the passage of the legislation without delay.