Canada’s Vaping Excise Tax Will Have Unintended Consequences

BEAMSVILLE – The Canadian Vaping Association has expressed its concerns to regulators about the proposed vaping excise tax rate. The association believes the proposed rate is too high and will lead to an increase in smoking and a significant contraband market.

If the rate remains as proposed a flourishing black market is inevitable. This is demonstrated by Canada’s serious problem with contraband tobacco and cannabis. The Canadian government has estimated that contraband tobacco makes up roughly 30% of the total Canadian tobacco market. The contraband tobacco trade was worth nearly $2.6 billion in 2008 and has only continued to grow. Since legalization, cannabis has added to Canada’s contraband problems, with illicit cannabis sales accounting for 54% of the market. E-liquid consists of only 4 ingredients and is simple to manufacture. The ease of manufacturing coupled with the demand for vape products, makes e-liquid an attractive product for illicit sellers.

Moreover, numerous studies find that taxing vape products increases rates of tobacco use. A study published in the Journal of Risk and Uncertainty, has found that increasing taxes on vaping products results in a corresponding and predictable increase in cigarette use. “These results suggest caution in regulating e-cigarettes because e-cigarette regulations may have a harmful, unintended consequence: increased smoking of traditional cigarettes,” said health economist Michael Pesko.

Nicotine, a chemical found in tobacco, may be addictive but it is not the source of the harm caused by smoking. It is largely the combustion process that is responsible for smoking’s harms. The combination of far fewer chemicals and the lack of combustion in vaping, makes vape products far less harmful than smoking. Regulators must consider the relative risk of the product and ensure price remains part of the incentive for smokers to make the switch.

“The CVA disagrees with the premise of taxing a harm reduction product, but no feedback was provided from the Budget 2021 consultation and no consultation was available for Budget 2022. At this stage, our focus is ensuring that the rate implemented is inline with public health objectives. Canada is already unlikely to reach its smoking reduction target and the rate as proposed will only serve to disincentivize smokers from making the switch. We have already seen the consequences of vape product taxes in Nova Scotia. The result was a historic increase in cigarette sales, a massive black-market, and the closure of the specialty stores that were meant to collect this tax,” said Darryl Tempest, Government Relations Counsel to the CVA Board.

Proponents of the excise tax believe that enforcement mechanisms will prevent illicit activity, but Canada’s demonstrated inability to curb contraband markets paints a different picture. The excise tax was initially proposed to discourage youth experimentation, though it will likely have the opposite effect. Illicit sellers will offer minors much cheaper, potentially dangerous products that contravene Canada’s labelling and packaging requirements.

“The excise tax proposal is similar to the proposal to ban flavours, in that both may seem well intentioned, but they fail to adequately weigh the consequences. We know that over regulation leads to more smokers, less jobs and weakened youth protections. This proposal is counterproductive by every measure,” said Tempest.

(This information is primarily sourced from The Canadian Vaping Association.  Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).