RECOMMENDATION

Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled ``An Act to amend the Customs Act, the Customs Tariff, the Excise Act, the Excise Tax Act and the Income Tax Act in respect of tobacco''.

SUMMARY

This enactment implements tobacco tax measures announced by the Minister of Finance on April 5, 2001 as part of the government's initiative to reduce tobacco consumption in Canada, especially among youth. It also implements a measure proposed in Budget 2000 reducing the exemption threshold under the tax on exports of tobacco products before April 6, 2001.

The amendments to the Customs Act, the Customs Tariff, the Excise Act, the Excise Tax Act and the Income Tax Act announced on April 5, 2001 implement new tax measures with respect to domestic tobacco tax rates, exports of tobacco products, tobacco products sold in duty free shops or as ships' stores, and tobacco products imported by resident travellers, as well as changes to the surtax on tobacco manufacturing profits.

Tobacco Excise Tax Rate Increases. The amendments increase excise tax rates by $2.00 per carton on cigarettes for sale in Ontario and Quebec, $1.35 per carton in Prince Edward Island, 30 cents per carton in New Brunswick and 10 cents per carton in Nova Scotia. The amendments increase excise taxes on tobacco sticks by $1.00 per 200 sticks nation-wide, and on manufactured tobacco other than cigarettes and tobacco sticks by $2.80 per 200 grams on products for sale in Ontario and by $1.00 per 200 grams on products for sale in other provinces and the territories. These tax increases are effective April 6, 2001.

Tax on Exports of Tobacco Products. This enactment implements the Budget 2000 proposal to reduce the exemption threshold under the tax on exports of tobacco products before April 6, 2001 from 2.5% to 1.5% of a manufacturer's production of tobacco products in the previous calendar year.

The amendments also implement the April 5, 2001 proposal to impose a new two-tiered tax on exports of tobacco products. For exports up to 1.5% of a manufacturer's production in the preceding calendar year, a new excise tax is imposed at a rate of $10 per carton for cigarettes, $7 per 200 sticks for tobacco sticks, and $6 per 200 grams for manufactured tobacco other than cigarettes and tobacco sticks. The amendments authorize the Minister of National Revenue to refund this tax where the importer provides evidence satisfactory to the Minister that all taxes and duties imposed at the national level under the laws of the foreign country into which the tobacco products are imported have been paid.

For exports over 1.5% of a manufacturer's production in the preceding calendar year, the amendments impose the current excise duty on tobacco products plus a new excise tax. The sum of the excise duty and excise tax is $22 per carton for cigarettes, $16 per 200 sticks for tobacco sticks, and $12 per 200 grams for manufactured tobacco other than cigarettes and tobacco sticks.

The amendments related to the new two-tiered export tax are effective April 6, 2001.

Tax on Tobacco Products for Sale in Duty Free Shops. The amendments impose excise duty and a new excise tax on Canadian-manufactured tobacco products delivered to duty free shops in Canada, or exported for delivery to foreign duty free shops, payable by the domestic manufacturer. The sum of excise duty and excise tax is $10 per carton for cigarettes, $7 per 200 sticks for tobacco sticks, and $6 per 200 grams for manufactured tobacco other than cigarettes and tobacco sticks. The amendments also impose an equivalent excise tax on imported tobacco products delivered to a duty free shop in Canada, payable by the operator of the duty free shop. The tax on imported tobacco products will be refunded on the first carton or equivalent of each product category sold to an individual who is not a resident of Canada and who exports the product. These measures are effective April 6, 2001.

Tax on Tobacco Products Delivered as Ships' Stores. The amendments impose excise duty and a new excise tax on Canadian-manufactured tobacco products delivered as ships' stores in Canada, or exported for delivery as foreign ships' stores, payable by the domestic manufacturer. The sum of excise duty and tax is $10 per carton for cigarettes, $7 per 200 sticks for tobacco sticks, and $6 per 200 grams for manufactured tobacco other than cigarettes and tobacco sticks. These measures are effective April 6, 2001.

Duty on Traveller's Tobacco Products. The amendments impose a new duty under the Customs Tariff on manufactured tobacco products imported by a resident of Canada under the terms of the traveller's allowance. The new duty is imposed at a rate of $10 per carton for cigarettes, $7 per 200 sticks for tobacco sticks, and $6 per 200 grams for manufactured tobacco other than cigarettes and tobacco sticks. This duty will not be imposed on tobacco products imported by an individual for personal use that are stamped in accordance with the Excise Act and on which excise duty has been imposed under that Act. These amendments are effective October 1, 2001.

Tobacco Manufacturers' Surtax. The amendment increases the rate of the existing surtax imposed under the Income Tax Act on a corporation's tax on profits from tobacco manufacturing. The rate increase is from 40% to 50% for taxation years ending after April 5, 2001, and is prorated for any taxation year straddling that date.

Miscellaneous Amendments. This enactment also implements a number of related and consequential measures, including provisions related to the application of interest in respect of taxes or duties amended or implemented by this enactment, new restrictions on the entry of tobacco products into bonding warehouses, and on their subsequent removal, and new stamping requirements and new offence and penalty provisions.