Canada reels from tobacco tax

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A new tax on tobacco products, to be levied from this week, will have a severe impact on duty-free operators in Canada.

The finance ministry has announced a tax of C$10 ($6.40) on Canadian-manufactured cigarettes, to be imposed with immediate effect on product sold for export, including duty-free. It also affects Canadian-made cigarettes exported for sale in the US duty-free and domestic markets. The tax is imposed on manufacturers but is expected to be passed on to operators and consumers.

From October 1, the tax will be bolstered by a levy on tobacco products being re-imported into Canada. Frontier Duty Free Association (FDFA) president Julian Lewin said the move was "unprecedented" in duty-free, where taxes were imposed on a traditional tax-free sector. The FDFA, which represents Canada's land border operators, is reviewing its position, he added. But he insisted that savings in duty-free were still significant compared to the domestic market in Canada.

Operators are unhappy that domestic market taxes have risen by only C$4 ($2.50) in certain regions, such as Quebec, Ontario and eastern provinces. The FDFA will argue for an increase in the domestic market levy in these regions to retain the price advantage of duty-free.

• The move to raise a tobacco tax was forecast in the March 15 issue of Duty-Free News International. For comment and reaction, see DFNI April 15, out next week.