The Government has announced a new tobacco tax structure to reduce the incentive to smuggle Canadian-produced tobacco products back into Canada from export markets the main source of contraband in the past. The main element of this new tax structure is an export tax on Canadian tobacco products, which will take effect as of April 6, 2001. This threshold represents the approximate level of exports required to meet the legitimate demand for Canadian tobacco products abroad, principally in the United States. To avoid double taxation of these products when they are entered for consumption into legitimate foreign markets, a refund of the tax will be provided to the foreign importer and domestic Canadian manufacturer upon proof of payment of foreign taxes. The following example illustrates how the refundable export tax will operate.
All figures quoted in the example are in Canadian dollars.
A Canadian tobacco manufacturer sells cartons of cigarettes to a U.S. importer. The U.S. importer pays U.S. federal tax on the imported cigarettes to the U.S. government. The U.S. importer would then provide the Canadian government with evidence that it has paid U.S. federal tax. The following table summarizes the rates for all products. Canada is engaged in discussions with the United States to better achieve the objective of Canadian tobacco products not being available tax-free and to avoid double taxation of exported Canadian products.