Key Issues

in Tobacco Taxation

Taxes and Prices (Smoking and Health Action Foundation)

Tobacco taxation and pricing have been central concerns for SHAF for many years, in part because of the political turbulence surrounding cigarette taxes in Canada.

In the 1980s, tobacco use declined substantially here, considerably faster than in the United States and many other Western countries. The main difference was price: under pressure from health groups, in particular the Non-Smokers’ Rights Association, governments in this country played tax catch-up with places like Scandinavia and Great Britain.

The industry response was massive, demonstrating how seriously tobacco companies took the threat of higher tobacco taxes. They began shipping enormous quantities of cigarettes into the US, in full knowledge that the only real market for Canadian cigarettes was in Canada and that the product exported south would be smuggled back in. When, in early 1992, the federal government responded by imposing an export tax, the industry’s lobbying efforts went into overdrive. Smokers would switch over to smuggled American cigarettes, the companies claimed. Some even threatened to move their production facilities out of Canada to avoid the new tax. A few weeks later, the government buckled under the pressure and repealed the tax.

By early 1994, thanks in part to elaborate public relations strategies, the industry had successfully turned cigarette smuggling into a major political crisis. Governments in Ottawa, Quebec City, Fredericton and Toronto folded, slashing taxes and effectively cutting the price of cigarettes in Central Canada by half. Nova Scotia and Prince Edward Island followed, leaving Canada with huge variations in prices between high-tax (Western Canada and Newfoundland) and low-tax provinces.

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