Mr. Speaker, I am pleased to speak this morning on Bill C-259, an act to amend the Excise Tax Act.
This bill was introduced by my colleague from Vancouver Island North. It would end the discriminatory excise tax on jewellery, a luxury tax that discriminates, 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. Exceptions include religious articles, watches that cost less than $50 and gems and jewellery that cost less than $3.
This tax, which was first imposed in 1918 after the first world war, is an outdated tax that no other industrialized nation in the world imposes on its jewellery industry. It is time for the government to recognize the need to eliminate this unfair tax.
Canada's jewellery industry is made up of 5,000 companies, most of which are small, private, family owned businesses. From an economic perspective, it is a $1.2 billion a year industry that employs 40,000 Canadians.
Let me give members some facts. Canada is one of the world's largest leading diamond producers, with all indicators pointing toward potential for future growth. In 2004, 40% of world diamond exploration expenditure was dedicated to the search for diamonds in Canada. We now rank third in the value of global production of rough diamonds.
Canada could strengthen its international position even further by encouraging and advancing domestic manufacturing involving diamonds and other sectors of the jewellery industry. By supporting this bill, we are encouraging domestic jewellery manufacturing instead of burdening the industry with such an archaic tax.
The excise tax addressed by Bill C-259 discriminates unfairly against the jewellery industry, which is the most heavily taxed consumer sector in Canada apart from alcohol, tobacco and gasoline.
The luxury label cannot be used as an argument any longer. In fact, jewellery is a commodity that is broadly purchased by all segments of Canadian society, from the very poor to the very rich.
A large part of the tax is collected from low value jewellery purchased by ordinary Canadians. According to the Canadian Jewellers Association, lower and middle income households account for more than 50% of jewellery and watch expenditures.
Whereas a $10 pair of earrings and a $500 wedding band are taxable, there is no luxury tax on a $250 bottle of perfume, a $2,000 suit or an $80,000 car.
The repeal of this tax would allow the jewellery industry to be on an equal playing field with other so-called luxury industries that are not subject to this discriminatory tax.
The excise tax on jewellery and watches is hurting small businesses. More than 90% of jewellery firms have fewer than 20 employees. These small businesses are subject to higher costs of financing inventory. The jewellery industry has considerable job creation potential, particularly as a cottage industry. While other industries cannot sprout up or survive in remote and rural areas, these small jewellery firms can and do succeed, creating Canadian jobs.
We are also killing jobs through the tax because its favours imports rather than domestic jewellery manufacturing. Imported jewellery is taxed on its duty-paid value when it enters Canada. This value is significantly lower than the taxable value of similar items on which domestic manufacturers pay the tax. Domestic jewellery manufacturers face lower profit margins and they lose to imports.
Canada has some of the best diamonds in the world and yet the excise tax makes Canadian diamonds more expensive at home than anywhere else in the world.
Another hit to the economy occurs when the excise tax is passed on in the form of higher consumer prices. Canadians are enticed to purchase jewellery and watches on their travels south of the border or on trips overseas and they use their personal exemption of up to $750 for a one time, one week absence.
Cost reductions from eliminating the tax would in part be passed on to consumers, which then would lead to increased jewellery sales, industry growth and jobs.
It is also important to consider the black market and how removing the jewellery excise tax could have an impact in reducing the incentive to smuggle jewellery.
One study found that the excise tax may account for more than 50% of the price difference between a smuggled piece of jewellery and a similar item purchased legally in Canada.
Bill C-259 would help Canadian manufacturers get back the market share that gets lost to the black market. Another study shows that the personal smuggling of jewellery from the U.S. and elsewhere, which is very difficult to police effectively, may cost Canadian jewellers up to 15% of their market. Again, Canadian jobs are lost there.
Furthermore, this tax is complex and difficult to administer. As manufacturers pay the tax, complications arise in constantly applying definitions, determining accurate valuations for tax purposes, and defining what constitutes manufacturing. For example, the tax can apply to plastic imitation jewellery, any articles made in whole or in part of coral or natural shells, and items made of gold or silver, except gold-plated ware for the preparation and serving of food or drink.
The flaws of the tax make it prone to evasion and avoidance, which also results in a significant loss to the government of GST and income tax revenue.
These same complexities and problems were also shared by the federal manufacturers sales tax. However, the difference in the case of the manufacturers sales tax was that its flaws and the structural weaknesses of administering the tax eventually led to its removal in 1991.
In addition to lobbying efforts from the jewellery industry, the Auditor General has also questioned this tax. The September 1996 Auditor General's report described a number of practical problems obstructing the fair and effective administration of the tax. Moreover, the House of Commons Standing Committee on Finance has twice recommended eliminating the tax.
In 1996 and most recently in October 2004, in a report on small business tax measures, the tax was called an anachronism that no longer serves any social policy objective. Nor does it fulfill the qualities that should be sought in a tax: equity, efficiency, ease of administration, and transparency. It is time for Canada to join the rest of the industrialized world and eliminate this unjust and discriminatory tax.
In closing, I would like to mention that the MLA from Great Slave applauds our member for Vancouver Island North for introducing this bill. He says, “The Northwest Territories has been blessed with diamond resources that now make us and Canada one of the leading producers in the world”. He says that the Northwest Territories has taken “strong stands to ensure that significant benefits from diamond development accrue to northern residents”. As a result, he says, residents have seen four diamond cutting and polishing plants established in the City of Yellowknife. He applauds and thanks the member for bringing this legislation forward and he can only hope that all members of the House will support this bill.
Let us support the creation of jobs and investment in Canada by repealing the excise tax on jewellery. I urge all members to support Bill C-259.