A Better Canadian Cannabis Tax Policy?
The current lobbying approach is not working
I may not be a tax expert, but I do know a gov't shakedown when I see one. When you tally up all the taxes, fees and wholesaler mark ups, the Canadian gov't take is close to 50% of the cost of many cannabis products.
LPs regularly (though not effectively) complain about the high rate of excise taxes (ET), which is set at $1/gram of dried flower or 10% of a gram’s value – whichever is greater.
Tax rates are not the only problem. By virtue of their intent and design, ET are weapons of mass corporate destruction.
They are...
I. Not fit for purpose
ET are used to offset the costs consumers impose on non-users through increased healthcare demands. They are also employed to deter use (among minors), and raise revenues.
Legal cannabis does not generate incremental healthcare costs - and may actually reduce them. High, opaque ET elevate consumer prices, sabotaging the fight against the illicit market (a key gov't objective).
II. Not fit for industry
ET work best in oligopolistic markets like tobacco or alcohol - which is not cannabis. As a B2B tax, they hide from buyers the true cost of cannabis perpetuating the myth of fat cat, inefficient LPs.
III. Overly expensive and problematic
Cannabis ET imposes a ridiculous administrative burden and operational hassle on LPs. Correspondingly, the govt’s cost of collection and tax management is also high.
Five plus years into legalization it’s time to find an alternative to ET that addresses all stakeholder needs.
Some (likely unoriginal) remedies include:
1. Base tax rates on THC levels or consumption formats.
Lower THC levels (which ostensibly are better for most consumers) and more benign formats should have lower tax rates.
2. Move to a %-based or Ad Valorem tax just on recreational cannabis.
3. As we do with fuel, allow for tax transparency at point of sale so consumers understand actual costs and see the gov't take.
4. Treat cannabis like most consumer products. Replace the ET with a consumption tax.
5. Align tax remittances to actual govt wholesaler payment cycles. LPs shouldn’t face cash flow issues because of misaligned govt tax and payment policies.
6. Eliminate the anachronistic excise stamps, just like with alcohol.
7. Allow for deferred tax payments post fiscal year end as is the case with corporate taxes.
The sector needs to make all levels of government accountable for the taxes they collect in terms of where the money is going (e.g., education, research) and the value of that spend.
Though creative solutions are needed, we should be under no illusions with this task.
Getting real reform will be difficult and time consuming:
> We are moving into the federal election season.
> The federal/provincial ET revenue split complicates lobbying efforts.
> ET is not the only regulatory challenge (e.g., OCS mark-ups & policies)
#canada #taxes #CRA #excisetax #LPs