B.C. backs away from new tobacco fee

The Vancouver Sun

01 April 1999

Jim Beatty, Sun Legislature Bureau Vancouver Sun

VICTORIA -- The B.C. government has backed away from imposing a licensing fee on tobacco companies, a key element of its war on the industry, fearing the fee would lead to increased smuggling and huge revenue losses.

The B.C. budget released Tuesday makes no mention of collecting any revenue from the Tobacco Fee Act, which would impose a $20-million licensing fee on Canada's top three cigarette makers.

The act was given royal assent last year, but has not been proclaimed.

The fear of lost revenues arises as Canada's cigarette industry threatens to pull its products from B.C. shelves. Sources say such action would open the door to increased smuggling, which already robs the B.C. government of at least $125 million in uncollected taxes each year.

Health Minister Penny Priddy said the threat of increased smuggling could hurt the province's already-battered financial status. "Certainly it's a challenge for the revenue for the province," she said Wednesday.

Priddy continued to support the legislation despite the daunting challenges, but couldn't say when it would come into effect.

"My intention is to proceed with it," she said, refusing to be specific. "When we're talking about the health of children, I don't back off on threats."

Sources say discussions have been continuing between the government and the tobacco industry, but the sides are at loggerheads. Already both sides are fighting court challenges over other elements of the province's tough new anti-smoking rules.

Cigarette makers say the licensing fee, which would amount to a total of $20 million for the three big manufacturers and could not be passed on to consumers, violates their constitutional rights and represents price-fixing, which is contrary to interprovincial trade rules.

"If [government] were to enforce the rules, they could end up forcing the companies to withdraw their products," said Dave Laundy, vice-president of the Canadian Tobacco Manufacturers Council, which represents the industry. Essentially, Bill 28 -- which was approved by the legislature and given royal assent last year -- would impose a $20-million licensing fee on cigarette makers according to their market share. The largest company, Imperial Tobacco, which has the lion's share of the B.C. cigarette market would be hardest hit.

While the government has yet to proclaim the law, all three companies say they will refuse to comply with it.

"This legislation is wrong, it's unconstitutional," said John McDonald, spokesman for Rothmans, Benson&Hedges, calling it anti-corporate legislation. "We would certainly challenge it in the courts," he said Wednesday.

Janet Hatfield, who represents RJR-Macdonald, said if the legislation is enforced, "our company would certainly have to reconsider its business in B.C."

The government's punitive law could simply make it unprofitable for her company to supply Export "A" cigarettes and other brands to B.C. stores. "We have to decide whether it would be worth our while doing business in B.C."

That could mean B.C. smokers, who represent a quarter of the province's population, would have to turn to the black market for their cigarettes.

According to current estimates, one in four cigarettes in B.C. is smuggled into the province, often in trucks from Ontario and Quebec, where prices are considerably cheaper because of lower taxes.

Cigarettes in B.C. are among the most expensive in Canada, making their illegal trade lucrative. In B.C., a carton of cigarettes costs about $49.75 while the same carton in Ontario is $28.30. In Alberta, a carton is about $8 cheaper than in B.C.

The recent squabble is just the latest in a continuing battle between the province and the tobacco industry.

Last year, B.C. broke new ground in Canada by announcing tough new anti-smoking legislation that was lauded by health advocates but rejected by the industry as heavy-handed and anti-business.

The legislation makes it easier for government to recover health-care costs from tobacco companies, requires companies to disclose the constituents of cigarette smoke and doubles the fines for retailers who sell cigarettes to minors.

In the mid-1990s, the Ontario and Quebec governments were forced to slash their tobacco taxes because of the huge rise in cigarette smuggling from the U.S.

An immediate drop in cigarette taxes killed much of the profit earned by cigarette smugglers and significantly stemmed the problem.

Late last year, an affiliate of R.J. Reynolds in the U.S. admitted in court that it had helped smugglers conduct business.

The admission was the first confirmation of what many believe is a continuing practice --tobacco companies helping smugglers obtain Canadian export cigarettes in the U.S. for their eventual re-entry into Canada.