moved that Bill C-259, an act to amend the Excise Tax Act (elimination of excise tax on jewellery), be read the second time and referred to a committee.
Mr. Speaker, Bill C-259 is an act to eliminate the excise tax on jewellery. I think it is instructive to read the brief preamble and the actual legislative change in the bill, but before doing so I would like to say that I have had the bill in the hopper for a number of years. It is finally coming before the House largely as a result of the fact that we have changed the the way we draw bills. I was fortunate enough to win the lottery from the standpoint that my bill was picked sixth in this Parliament for private members' business. I feel quite blessed in that regard.
Bill C-259 is now a timely bill. When I first put it forward, we were dealing with a circumstance where this change had been promoted by the jewellery industry for decades, if not generations.
Now what has really changed is that we have everyone involved, right from the mining industry through to the retailer who has anything to do with diamonds and/or jewellery of all kinds, including costume jewellery. They are all now involved in this. Any item deemed to be jewellery that is sold at retail for more than $3 is subject to this tax.
Since I first introduced the bill in the House two Parliaments ago, Canada has become a diamond powerhouse, so the urgency of removing this anachronism of a tax is greater than it has ever been.
The preamble of the bill states:
Whereas manufacturers currently pay an excise tax of ten per cent on the sale price of jewellery manufactured in Canada and importers currently pay an excise tax of ten per cent on the duty-paid value of imported jewellery;
Whereas this tax was introduced in 1918 in respect of several types of goods considered to be luxury goods but today is the only luxury tax in Canada;
Whereas Canada is the only industrialized nation and the only diamond-producing nation that continues to have a luxury tax on jewellery;
And Whereas, as a result of this tax, diamonds mined in Canada cost more in Canada than anywhere else in the world;
Now, Therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
- Paragraph 5(c) of Schedule I to the Excise Tax Act is repealed.
That is pretty simple. The preamble actually says a lot.
Here is what Canada is currently doing. If we have an item manufactured outside of Canada and imported into Canada and it is identical to an item manufactured in Canada, we tax the made in Canada item and do not tax the item coming from outside. This is obviously killing jobs. The excise tax on jewellery is a 10% levy paid by manufacturers on the sale price of items manufactured in Canada and by importers on the duty paid value of imports.
The House of Commons finance committee reported in 1996 that the tax was an anachronism and concluded that it should be abolished. It said the same thing in 2004. The revenue collected from the tax in 2003 was $87 million.
As a result of the growth in the diamond industry, it is now producing government revenues at current rates of about $500 million a year. Canada is currently the third largest manufacturer of diamonds in the world. By the year 2012, Canada is going to be the number one producer in the world. Government revenues from this burgeoning industry are far more than the much smaller revenues that are coming in as a consequence of this unfair and discriminatory tax.
The average Canadian household spends about $170 per year on taxable jewellery, so the average Canadian is affected by this tax.
The threshold for defining taxable jewellery is items that cost more than $3. Therefore, on every jewellery imitation at a Kmart or a Zellers or a Wal-Mart, the tax applies in Canada, but of course that tax does not apply in those same stores in the U.S. We are penalizing ourselves and driving business across the border, where even expensive jewellery can avoid the taxation because people bring it back under the $750 tax exemption for returning residents.
Steven Parker appeared before the finance committee. He is a small business jewellery manufacturer based in Vancouver, whose company employs about 20 full time people making wedding rings, family rings, earrings and necklaces. He had these observations about the tax. He is at a tax disadvantage compared to imported products because the 10% tax applies to all his costs, including marketing, distribution, manufacturing and payroll costs. He can import and have a lower cost base that he applies the 10% tax to; it would be based on landed value only.
Steven Parker and others would manufacture more jewellery in Canada. Two large Canadian jewellery manufacturers relocated outside the country since the 1998 investigation by the finance committee simply because they got tired of waiting for the government to remove this excise tax. They concluded it was not going to happen. The companies were tired of being undercut by manufacturers outside of Canada, so they relocated. This tax is demonstrably killing jobs.
About one-half of the jewellery sold by value in Canada contains diamonds. Saskatchewan will soon be joining the Northwest Territories as a world class diamond producer. Any of the premiers who are involved in jurisdictions where diamond production is either present or about to be are calling for the removal of this tax. It is pre-empting local jewellery manufacture. It is pre-empting tourists buying jewellery made in Canada because they know they can get it cheaper elsewhere.
The Mining Association of Canada said this in May of this year:
In less than a decade, Canada has emerged as a diamond powerhouse...By providing the right mix of fiscal and regulatory policies, governments have the opportunity to maximize the contribution of Canada's diamond industry to the benefit of all Canadians.
One of the key recommendations is “eliminating the federal excise tax on jewellery”. There is virtual unanimity on this subject.
Finally, the application of this tax is an art, not a science. It is applied unevenly. This is very threatening to businesses that are looking for predictability on their taxation.
The finance committee this year heard from Mo Charania of Ottawa, a third generation jeweller with five stores. In 1999 he had an excise audit covering the previous three years. He was assessed over $800,000 in excise tax and was prepared to wrap up his business because that was a bill he could not pay.
Upon investigation of discrepancies and other ways to interpret the tax, especially in terms of how a manufacturer is defined, in his case, because of these discrepancies and differences they were able to reduce his tax bill to $340,000, which meant having to sell only a couple of the five stores in order to pay the bill. I say “only” rather satirically.
Upon further investigation, it became apparent that other companies were not being assessed by the Canada Customs and Revenue Agency because of an administrative policy created outside of the legislation which allows the excise to be paid at a discounted value for multiple items of the same article produced for retail. By application of this formula, it was not an $800,000 bill, nor was it a $340,000 bill. In fact, Mr. Charania would receive a credit.
This tax is incredibly complicated and very subjective in its application. On the part of the business owner, it often requires manual tracking rather than computerized tracking because of these characteristics. Also, it is subject to different opinions of and rulings by different auditors and people within CCRA. That is why CCRA has created a guide on how to apply it that is outside of the legislation. Only some of the businesses to whom this tax is being applied are even aware this guide exists. Obviously not all of the auditors, even with that interpretive document, operate the same way.
It is fairly easy to summarize many of the reasons why we should axe this tax. Consumers are paying a hidden luxury tax for non-luxury items. We can hardly describe a $3 item of costume jewellery as a luxury item.
Canadian jewellery retailers and manufacturers are discriminated against. Canadian jobs are lost. Canada will soon be the largest producer of diamonds in the world and our diamonds will cost more in Canada than anywhere else.
The finance committee has recommended that the tax be abolished.
First nations want the tax abolished; they are important participants in the diamond industry at the mining level and also increasingly in the value added participation.
A really important aspect is that retaining this tax is driving the jewellery industry in Canada underground. The volume of illegal evasion and legal avoidance of the tax is estimated to be in the range of 50% of recorded sales or larger. In 1990 recorded sales were $2.3 billion, just to give a benchmark of what kind of numbers we are talking about. When we get that kind of avoidance or evasion, the GST is also completely avoided, which means that in all likelihood this tax is actually revenue negative for the government and an incredible burden for the business community.
It is time to axe this tax. I have a letter from the member from Oak Ridges completely agreeing with my statement. That is dated January 30 of this year. I have a letter from the chair of the Manitoba caucus completely agreeing with my position. That is dated February 6 of this year. I have a letter from the minister of resources for the Northwest Territories that says the same thing.
My time is up, Mr. Speaker.