Pubdate: Tue, 14 Nov 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Author: Andre Picard
Page: A13


When marijuana becomes a legal consumer good on July 1, 2018, it will
be taxed. But how much it will be taxed, who will share in the spoils
and to what degree are all points of contention.

Here's what the federal government has proposed: An excise tax of $1 a
gram on purchases of less than $10, and a 10-per-cent tax on purchases
above $10.

The tax would be applied equally to recreational and medical
marijuana. The revenue raised from the excise tax would be split 50/50
between Ottawa and the provinces. In addition, marijuana sales will be
subject to the federal and provincial sales taxes - GST, PST, QST,
HST, depending on jurisdiction.

It is estimated that 4.6 million Canadians will purchase legal
marijuana in the first year of legalization (only slightly higher than
the number that purchase it illegally now) and they will consume
roughly 655 tonnes. In other words, there are billions of dollars in
tax revenue at stake for governments, and individuals are going to
take a tax hit too.

So let's unpack some of the debates.

The price of legal marijuana has yet to be set by provinces, but it
will be in the $8-to-$10-a-gram range. The price has to be competitive
with the black market and street prices average $8.84 a gram,
according to a detailed analysis by the Parliamentary Budget Officer.

If the current taxation proposal is adopted, an $8 gram of cannabis
would cost $10.17 at the register in Ontario ($1 excise tax plus $1.17
HST) and $9.45 in Alberta ($1 excise tax plus $0.45 GST).

That's more or less in the sweet spot that would allow legal retail
outlets to compete with street dealers, assuming the products are of
comparative quality.

The group Canadians for Fair Access to Medical Marijuana is arguing
that users of medical marijuana should be exempt from taxes because
other prescription drugs are not taxed.

That is a dubious position because marijuana is like no other
prescription drug - it is not tested in clinical trials, packaged in
measurable doses or sold in pharmacies.

There are a lot of anecdotes about the benefits of marijuana for
things such as pain relief, but little good evidence. In fact, the
line between medicinal and recreational use is often a blurry one,
particularly when you can walk into many a dispensary and get a script
without much effort.

If someone smokes one gram of marijuana daily for "medical" reasons,
the new tax regime will cost them an extra $365 (they already pay
sales taxes). That's unfortunate collateral damage.

The only thing a tax exemption for medical marijuana would do is
encourage recreational users to dream up ailments to save a buck.
That's why there is no jurisdiction where such an exemption exists.

The most heated political and policy discussion leading up to the
meeting of federal, provincial and territorial finance ministers on
Dec. 10 to 11 will be how the new tax revenue is divvied up.

There is no question that the provinces, and their municipalities more
specifically, will have additional costs when marijuana is legalized,
such as building a distribution network, changing bylaws and policing.
(While possession of marijuana up to 30 grams or so will no longer be
a crime, there will still be all kinds of restrictions, including on
where pot can be smoked and on drugged driving.)

So the 50/50 split doesn't seem fair.

But where do you set the dividing line? The best place to look for
guidance may be tobacco taxes. Last year, governments collected
$8.4-billion in tobacco taxes - not including GST or provincial sales
taxes. Of that total, $5.1-billion went to the provinces and
$3.3-billion to Ottawa. That's a 60/40 split, which seems reasonable.

Those eye-popping numbers are a reminder that we heavily tax tobacco
products. A carton of 200 cigarettes costs $135.40 in Manitoba, of
which $96.14 is taxes. In Quebec, by comparison, a carton costs
$88.67, of which $55.68 is taxes.

Should we be taxing marijuana to that degree? Some day, perhaps, but
at this point the goal is to undermine the black market, and to do so,
prices must be competitive.

When people start smoking pot - for medicinal reasons or otherwise -
they are advised to "start low and go slow."

That is sage counsel for the tax man as well.
- ---
MAP posted-by: Matt