Heavy Federal Vape Tax Looms Over Canada

A hefty federal vape tax has been proposed by the Canadian government. The tax would be implemented on October 1st should it be passed. This proposal came on Thursday April 7th as part of the Tax Measures for Budget. 

The tax will come into effect at the federal level, with the potential for further taxation in individual territories and provinces. 

The Government of Canada has been considering a vape tax since 2021. The official statement links the proposition of excise tax on vaping to the believed risks vaping poses on society, particularly the youth. 

The Proposed Tax 

The proposed tax is a staggered one based on the volume of any e-liquid in a container. The initial 10 ml of any e-liquid would be taxed at $1.00 per 2 ml, including fractions of. Thereafter, a rate of $1 per 10 ml, including fractions of. This duty rate sees the potential to increase the price of a typical bottle of 30 ml vape juice by around 30%.

This duty rate would be applicable to all nicotine-containing products like e-liquids, pods, and disposable vape pens. 

The Effects of The Vape Tax

An example for the calculation of the tax for a bottle of e-liquid was included in the official tax document released by the government. “For a 30 ml bottle of vaping liquid, the federal excise duty would be $7.00: $5.00 for the first 10 ml, and an additional $2.00 for the remaining 20 ml,” according to the official document.

Furthermore, provinces and territories that choose to participate in a federally administered tax regime would be eligible to place further taxes on vaping products. Which has the potential to cause massive increases in the pricing of vape products. 

The proposed provincial rate would be equal to the federal duty rate. This would result in the combination of the federal and provincial tax increasing the price of a 30 ml bottle by $14.00 and the price for a pack of four prefilled 1.0 ml pods by $8.00.

Background information 

Cannabis-based vape products that are already subject to the excise duty framework would be excluded from the potential taxation. Additionally, self-produced products like this would also be exempt from the tax, granted they are not for distribution. 

There is some proposed leeway for retailers holding stock. Should the tax be passed by Parliament, any untaxed products held in stock as of 1st October would be eligible for duty-free sale until the beginning of the new year 2023. 

Another slight concession to the tax proposal is the offering of a traveler’s exemption. Any person traveling out of Canada for more than 48 hours will be permitted to bring up to twelve nicotine-containing vape products, each no more than 10 ml, back into the country duty-free. These are only products like vape juice, pods and single-use vape pens. No tax would be placed on hardware items like mods or coils.

The tax on vape products comes as part of already strict vape laws in Canada. Health Canada, under the Tobacco and Vaping Products Act, has set a number of restrictions on vape products since the act’s inception in 2018.

How is the Vape Excise Tax Compared to Cigarettes?

The link between cigarettes and vaping has always played a huge role in the decision-making criteria for vaping, with this tax following suit. The fact that both products contain nicotine has meant they are often grouped under the same category, regardless of clear differences between the two, particularly in terms of health implications. 

Through the proposed duty rates, a curious link has now arisen as vaping, the much less harmful of the two, will be taxed more heavily than cigarettes. Currently, the Government of Canada taxes cigarettes at a duty rate of $0.095724 per cigarette or $1.9145 per carton. Conversely, under a combined federal and provincial tax any pod under 2 ml would have a duty rate of $2.00 regardless of nicotine percentage.

A comparison found that one 40 mg pod is typically equal to one pack of cigarettes. This means the tax for a single pod would be higher than a pack of cigarettes. 

This could be seen as a huge counter to the progress made for tobacco harm reduction (THR) through the implementation of vaping. Cigarette sales could be on the rise in the final quarter of 2022 as consumers attempt to avoid the higher excise tax rates.

In Conclusion

The new proposed excise tax on vape products looms over the Canadian vape landscape. The possible combination of equal federal and provincial tax has the potential to result in hefty price increases on all nicotine-containing products like e-liquid bottles, pre-filled pods, disposable vape pens, and even nicotine base liquid. This tax would result in vape products being taxed more heavily than cigarettes – a huge step backwards in the face of THR. 

While the tax is set to take effect on October 1st should it be passed, it is likely the full force of it will only be felt at the beginning of 2023. Stock held by retailers at the time of implementation would be exempt from the tax until the new year.