CANADA. Retailers on the Canadian border have been hammered with a dramatic increase in federal excise tax on tobacco sold in duty free stores, slashing price savings over domestic tobacco.
The measure raises the tax from C$15 per carton (200 sticks) to C$21.03 per carton – an increase of +40% – and is by far the sharpest rise since the levy was first imposed more than a decade ago. It was revealed in yesterday’s (11 February) Budget announcement to harmonise the tax regimes on domestic and “˜duty free’ tobacco, and takes immediate effect.
In a press release circulated to national media, the Frontier Duty Free Association (FDFA) expressed shock at the move and said its members had received no prior consultation or warning.
FDFA President Abe Taqtaq added: “We understand and support the government’s need and desire for a balanced budget and the goals of Canada’s tobacco health strategy, but a tax shock of this magnitude”¦is a major blow to our stores.
“Our members are troubled about the unintended consequences of this tax increase since it threatens to divert sales away from our members’ stores to the illicit market, which in turn jeopardises both the government’s revenue and public health goals,” said Taqtaq.
The association argued further that the new tax regime would drive Canadians to the USA to buy cigarettes, handing a competitive advantage to US retailers close to Canada’s border.
While tobacco remains the second biggest product category by gross sales value on the Canadian border (C$39.77 million/US$36.16 million in 2013), the excise tax has severely eroded both sales and profitability over the past 10 years.
