Regulations Amending the Regulations Relieving Special Duty on Certain Tobacco Products and the Regulations Respecting Prescribed Brands of Manufactured Tobacco Products and Prescribed Cigarettes: SOR/2018-41

Canada Gazette, Part II: Volume 152, Number 6

Registration

March 7, 2018

EXCISE ACT, 2001

P.C. 2018-203 March 6, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to paragraph 304(1)(o) of the Excise Act, 2001^{footnote a}, makes the annexed Regulations Amending the Regulations Relieving Special Duty on Certain Tobacco Products and the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes.

Regulations Amending the Regulations Relieving Special Duty on Certain Tobacco Products and the Regulations Respecting Prescribed Brands of Manufactured Tobacco Products and Prescribed Cigarettes

Regulations Relieving Special Duty on Certain Tobacco Products

1 Schedule 1 to the Regulations Relieving Special Duty on Certain Tobacco Products^{footnote 1} is amended by adding the following in alphabetical order:

Dreams

Mark Adams No. 1

Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes

2 Schedule 1 to the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes ^{footnote 2} is amended by adding the following in alphabetical order:

Dreams

Mark Adams No. 1

Coming into Force

3 These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Background

The Excise Act, 2001 (the Act) imposes excise duty on domestically manufactured and imported tobacco products for consumption in Canada. Tobacco products manufactured in Canada or imported into Canada are “stamped” to indicate that federal excise duty has been paid. Manufactured tobacco products that are not intended for entry into the Canadian duty-paid market (e.g. exports), however, are not stamped, but instead must be entered into an excise warehouse and must have the tobacco markings that are required under the Act printed on or affixed to the product’s container.

The Act provides relief from the marking requirements if the brand of tobacco was manufactured in Canada but is not commonly sold in Canada or, in the case of cigarette formulations, the particular type or formulation has never been sold in Canada under that brand or any other brand. In addition, the brand of manufactured tobacco or cigarette formulation must be prescribed in the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes (the Prescribed Brands Regulations).

Generally, tobacco products that are manufactured in Canada for export are also subject to special duty. Brands of tobacco products including cigarette formulations that are destined for export may be relieved from the special duty if the brand of tobacco has not been commonly sold in Canada, or the particular type or cigarette formulation has never been sold in Canada under that brand or any other brand. In addition, the brand of manufactured tobacco or cigarette formulation must also be prescribed in the Regulations Relieving Special Duty on Certain Tobacco Products (the Special Duty Regulations).

Relief under the tobacco marking regime works concurrently with the relief from the imposition of special duty. Consequently, the prescribed brands identified in the Prescribed Brands Regulations exactly match the prescribed brands identified in the Special Duty Regulations.

Canadian tobacco manufacturers can apply to the Canada Revenue Agency (CRA) to add new brand(s) of tobacco products or cigarette formulations to the lists of prescribed brands found in the two regulations mentioned above. To ensure that the integrity of the lists is maintained, each request must be accompanied by a business plan and supporting document evidence, which should comprise at least the following elements:

• — how the product formulation differs from Canadian products in terms of physical characteristics before and during consumption;
• — the export market contracts in place, in development, or being negotiated;
• — details of product packaging graphics for the intended market; and
• — business projections (e.g. volume, sales and markets).

Issues

In order to be relieved from the tobacco marking requirements and the imposition of the special duty, the brands of tobacco must be listed in the Prescribed Brands Regulations and the Special Duty Regulations. Two Canadian tobacco manufacturers have applied to have one brand prescribed each.

As a result, Schedule 1 of these two regulations must be amended.

Objectives

The objective of this amendment is to add two brand names to the Schedule 1 of both the Prescribed Brands Regulations and the Special Duty Regulations.

This initiative accommodates the business plans of Canadian tobacco manufacturers and aims to ensure that the prescribed brands program continues to promote Canada’s export opportunities in foreign markets.

Description

The CRA received submissions from two tobacco manufacturers for the addition of two tobacco brands. As a result, Schedule 1 to the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes is amended by adding the following in alphabetical order:

Dreams

Mark Adams No.1

Schedule 1 to the Regulations Relieving Special Duty on Certain Tobacco Products is amended by adding the following in alphabetical order:

Dreams

Mark Adams No.1

“One-for-One” Rule

The “One-for-One” Rule does not apply, as neither of the proposed amendments increases the administrative burden on business.

Small business lens

The small business lens does not apply, as neither of the proposed amendments increases the administrative burden or compliance costs for small business.

Consultation

The addition of two brands to the lists of prescribed brands results from requests received from the tobacco licensees in response to an invitation extended to all tobacco licensees. No additional consultation with these stakeholders is necessary.

The CRA consulted Health Canada and they have no concerns with the proposed amendments.

Rationale

Under the Act, domestically manufactured and imported tobacco products that are not intended for entry into the Canadian duty-paid market (e.g. exports) require specific markings on their containers. In addition, the Act imposes a special duty on tobacco products that are manufactured in Canada and exported. Brands of manufactured tobacco may be relieved from the marking requirements and the special duty if they meet eligibility requirements and are prescribed in the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes and the Regulations Relieving Special Duty on Certain Tobacco Products.

Amendments to Schedule 1 to both regulations are required in order to prescribe the two brands of manufactured tobacco. These brands are destined for export to foreign markets and meet the eligibility criteria for being relieved from the marking requirements and the special duty imposed under the Act.

These amendments will enable the Canadian manufacturers to generate additional revenues from contract manufacturing specifically for export markets. Failure to access these opportunities would result in a loss of business contracts and their associated revenues. These amendments are relieving in nature, and the additions of two new brands to the prescribed lists do not give rise to any additional costs or savings to any stakeholder.

Implementation, enforcement and service standards

These regulatory amendments will come into effect the day on which they are registered.

The CRA is responsible for ensuring compliance with the requirements of the Act at the manufacturer level. Manufactured tobacco that does not meet the prescribed brand conditions set out in the legislation is ineligible for relief neither from the tobacco markings nor the imposition of special duty.

The CRA conducts audits and verification visits of tobacco manufacturers to confirm that prescribed brands are indeed exported from Canada. When a tobacco manufacturer cannot demonstrate that the conditions have been met, the CRA may impose any sanctions that the legislation provides.

The CRA also has a memorandum of understanding and a service level agreement with the Canada Border Services Agency (CBSA), under which the CBSA examines export shipments of tobacco products to assist the CRA in reconciling these exports with information gained during audits of tobacco manufacturers in Canada.

The Royal Canadian Mounted Police (RCMP) is responsible for enforcement activities relating to the illegal possession, purchase, or sale of tobacco products in Canada.

No additional resources will be required by the CRA, the CBSA or the RCMP for the implementation of these amendments or related compliance and enforcement activities.

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