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G-4
RAT
BRITISH-AMERICAN TOBACCO COMPANY LIMITED
TO: BATCo Board, General Managers. Regional Finance Controllers,
Heads of Department
SUBJECT: Canada - Cigarette Smuggling and Tobacco Taxes
it is four months since the Canadian Government announced a substantial reduction in Federal excise
taxes in an effort to elinunate smuggling of cigarenes into Canada from USA. Further to my note of
14 February, I can now advise some more information and consequences of this action.
Indirect taxes on tobacco products in Canada escalated enormously in the late 1980's and early
1990's. e iz. taxes rose in the period 1981-1991 by 575% and Federal and Provincial Governments
collect more than CS 7 billion per annum. However, the Quebec Govenunent for example collects
less money than it did in 1988 as so many smokers were purchasing smuggled cigarettes.
The highest incidence of smuggling from USA is into the provinces of Quebec and Ontario through
Indian reservations straddling the border This Megal trade had built up into a major, orga6sed and
highly profitable business, it was also Provoking other criminal activity. It was estimated that about
I million Canadians consumed 15 billion contraband cigarettes in 1993, in Quebec province the
market share was around 60%. Federal and Provincial Govc-nment losses were estimated at CS 2
billion per aim Li -,,I
Before the reduction a typical (Quebec) RSP was CS 232/rrW]e of which CS 176 was taxes, after the
reduction the figures are RSP CS I 1 8 and taxes CS 59 Quebec and Ontario followed the Fed"
lead and reduced respectively by CS I I and CS 9/60 cents per canon, Nova Scotia and New
Brunswick bv CS '? and finally PI by CS 9.2-5. Other provinces have not followed and so the
reduction there is onlv the Federal CS 5/carion.
The reduction in cigarette smuggling has been dramatic, Quebec police authorities estimate a decline
of 90%. Duty paid cigarette sales have correspondingly increased, it is too soon to say whether
consumption has increased or whether consumers have simply transferred to legal product. The
impact on the smugglers'business has been severe. but some increase in non-tobacco illicit trade is
possible -
The previous enormous price differential betweer USA and Canadian duty paid product has gone,
but there are now wide inter Province prices which does encourage some degree of inter Province
'trade'. Selling price examples are (Canadian S per carton)
USA (average) (23.00), Quebec (23 75), Ontario (24.96), Manitoba (45.83), New Brunswick
(3.3) 49), Alberta (40.87), Saskatchewan (46 63), British Columbia (49.93).
The tax reduction has been effective Of course the other measures announced, e.g. tighter policing
and packet print --markings will have contributed. You have advised that other Governments around
the world have been following the Canadian situation with interest. You should continue to use this
le in your lobbying against penal and discriminatory indirect tax rates.
D J Bishop 22 June 1994
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MILLBANK KNOWLE GREEN STAPrES NIMDLESEX Twig IDY co
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BATCo document for Province of British Columbia 14 April 1999