40% tax increase will drive consumers to illicit markets
OTTAWA, Feb. 12, 2014 /CNW/ - The Frontier Duty Free Association (FDFA), which represents Canada's land border duty free shops, today expressed great concern that the huge excise tax increase on tobacco products will work counter to government revenue goals, health strategies and Canada's economic interests.
"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 - which was brought in without any prior consultation or warning - is a major blow to our stores," stated Abe Taqtaq, FDFA President.
The 2014 Budget increased the federal excise tax on duty free cigarettes from $15 per carton to $21.03 per carton - a 40% tax increase that was applied overnight.
"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 jeopardizes both the Government's revenue and public health goals," added Taqtaq.
In recent testimony to the House of Commons Justice Committee, a representative from the Canada Border Services Agency called contraband tobacco "a plague that is increasing." Estimates of the size of Canada's contraband market have ranged from 25-33% in recent years, fuelled by illegal manufacturing and sales on First Nations reserves.
FDFA members, which are all Canadian-owned stores, are also confused regarding the origins of this tax increase since duty free stores were originally established to help repatriate sales of products like tobacco, and therefore bolster government revenues and Canadian employment.
"Higher taxes in Canada drive more consumers to the U.S. to buy tobacco products and, without effective means of enforcement at the border, in turn result in more illicit product entering the country. That translates into more lost revenue for government and creates a competitive advantage for U.S. retailers over law abiding Canadian retailers," warned Taqtaq.
The Frontier Duty Free Association (FDFA) is the industry association representing the interests of Canada's duty free shops. Active membership includes 28 Canadian Land Border Duty Free Shops, and Associate Members consists of Canadian Airport and U.S. Land Border Duty Free Shops, as well as trade supplier members and others interested in the duty free industry.
SOURCE: Frontier Duty Free Associaton
For further information:
Laurie Karson, Executive Director, 613-233-1946