Canada is strengthening its regulatory system for the production and sale of electronic cigarette products.
Starting October 1st, manufacturers and importers of e-cigarettes in Canada are required to obtain a license or register with the Canada Revenue Agency, affix a vaping excise stamp on their products, and pay a consumption tax. From October 1st to December 31st, there will be a transition period, after which only stamped e-cigarette products can be sold at retail stores. These changes stem from amendments to the 2001 Excise Tax Act and its 2022 Federal Budget Regulations.
Robert Kreklewetz, an indirect tax, customs, and trade lawyer at Millar Kreklewetz LLP, stated that these changes, from a tax perspective, essentially mean that the federal government is treating electronic cigarettes as tobacco products.
A federal excise tax of $2.91 is imposed on 20 packs of cigarettes, while approximately two milliliters of vaping liquid would require a $1 tariff. He added that this applies to nicotine-free e-liquids.
Kreklewetz stated that when e-cigarettes first emerged, like with any new technology, the government's response and action was slow. There was a lack of regulation from a product perspective, creating a bit of a wild west situation. Similarly, there was a lack of regulation from a taxation perspective, with the exception of federal sales tax, treating e-cigarettes like any other commodity. However, there was no specific consumption tax or cigarette system in place for e-cigarettes. But now, all of that has changed.
Canada also regulates electronic cigarette products through the Tobacco and Vaping Products Act and the Food and Drugs Act, and has established regulations that limit the concentration of nicotine and prescribe packaging and labeling standards.
Kreklewetz stated that tax policies are typically aligned with public policies. He proposed imposing a consumption tax, also known as a sin tax, on electronic cigarettes because they are a less harmful alternative to smoking. This would reduce incentives for smokers to switch to electronic cigarettes.
The Canadian Ministry of Health has stated that the health risks of chemicals found in electronic cigarette products, including the main liquids used in them - vegetable glycerin and propylene glycol - are still not fully understood. While these chemicals are considered safe for use in cosmetics and sweeteners, inhaling them over a long period of time is considered "unknown and still being evaluated." Similarly, the chemicals used to flavor the vaping oils are typically used by food manufacturers and are safe for consumption, but the effects of inhaling these chemicals have not yet been thoroughly tested.
Certainly, nicotine is highly addictive. The Canadian Department of Health warns that nicotine addiction in children and adolescents can "affect memory and attention," "alter the development of their brains," lower impulse control, and cause cognitive and behavioral issues.
The Canadian Department of Health has stated in its resource on "e-cigarettes and quitting smoking" that while the best choice for smokers is to quit smoking altogether, switching to e-cigarettes will "reduce your exposure to harmful and carcinogenic chemicals" and involve "short-term health improvements." E-cigarette products only contain "a small fraction of the 7,000 chemicals found in tobacco smoke," the Canadian Department of Health noted. When using e-cigarettes to quit smoking, some evidence suggests that they are associated with higher success rates.
Kreklewetz stated that if electronic cigarettes are viewed as a means for current smokers to quit smoking and switch to nicotine replacement products, then every dollar of tax paid on electronic cigarettes is simply an economic deterrent to quitting smoking. If the cost of vaping is the same as smoking, then why would anyone want to switch?
He said, "This is the vague logic that I see in the new tax system. The federal government's way of working these days is depleting new sources of revenue. Therefore, people may see the e-cigarette tax more as a tax grab than good public policy.
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