Canada’s Tobacco Tax: How It Impacts Smokers’ Wallets

Canada’s tobacco tax is one of the highest in the world, aimed at reducing smoking rates and discouraging youth from starting the habit. However, it significantly affects smokers’ wallets, especially for those who continue to consume tobacco despite the rising costs. 

In this blog post, we will explore the various aspects of Canada’s tobacco tax, its historical context, how it impacts smokers financially, and what the future may hold for tobacco taxation in the country. By the end, you’ll have a better understanding of how this tax influences the cost of smoking in Canada.

 

Understanding Canada’s Tobacco Tax

Canada’s tobacco tax system is complex and multi-layered, involving federal, provincial, and territorial taxes. The primary aim of these taxes is to raise the price of tobacco products, making them less affordable, and in turn, reducing consumption. However, for smokers, this tax translates directly into higher prices for premium cigarettes, cigars, nicotine pouches, nicotine vapes, and other tobacco products.

Federal Tobacco Tax

At the federal level, Canada imposes an excise duty on tobacco products. As of 2024, the federal excise duty on cigarettes is $0.14608 per cigarette, meaning a pack of 20 cigarettes incurs a federal tax of $2.9216. For a carton of 200 cigarettes, this amounts to $29.216. Other tobacco products, such as cigars and chewing tobacco, also carry a federal excise duty based on weight or quantity.

The government regularly adjusts the excise duty to account for inflation and to further discourage smoking. This means smokers often face price hikes year over year. For example, in recent years, annual increases have been introduced in line with Canada’s broader efforts to cut smoking rates, especially among young people.

Provincial and Territorial Tobacco Taxes

In addition to the federal tax, each province and territory in Canada imposes its own tobacco taxes. These rates vary significantly depending on the region, contributing to the overall cost of tobacco products in different parts of the country.

For instance, in Ontario, the tobacco tax is $18.37 per carton of 200 cigarettes. In contrast, in Nunavut, where smoking rates are the highest in the country, the tobacco tax is $60 per carton. These provincial and territorial taxes play a major role in the price disparity of cigarettes and tobacco products across Canada.

Harmonized Sales Tax (HST) and Goods and Services Tax (GST)

On top of excise duties and provincial taxes, smokers also pay the Harmonized Sales Tax (HST) or Goods and Services Tax (GST), depending on the province. The HST or GST is applied to the retail price of tobacco, which already includes the federal and provincial excise duties. This means that smokers are paying taxes on top of taxes, further increasing the final price of their tobacco products.

 

Historical Context of Canada’s Tobacco Tax

Tobacco taxation in Canada dates back to the early 20th century, with taxes introduced primarily as a means of revenue generation. Over time, however, the government began using tobacco taxes as a public health tool to reduce smoking rates.

The Impact of Taxation on Smoking Rates

Canada’s tobacco taxation strategy has been effective in curbing smoking rates. Since the 1960s, when tobacco use was at its peak, smoking rates have steadily declined. In 1965, approximately 50% of Canadian adults smoked. By 2021, that number had dropped to just 14%, with similar reductions in youth smoking.

The consistent increase in taxes has played a significant role in this reduction. Tobacco products have become less affordable, particularly for younger people and low-income individuals, which has helped to deter new smokers from picking up the habit and encouraged existing smokers to quit.

Major Tobacco Tax Increases Over the Years

Several major tax hikes over the years have shaped the landscape of tobacco pricing in Canada. Notable increases occurred in:

• 1991: When the federal government raised the excise duty on cigarettes by 40%.
• 2001: An additional excise tax of $2.00 per carton was introduced as part of a broader health initiative.
• 2014: The federal government imposed a 24% hike on tobacco taxes in its budget, adding an extra $4 per carton of cigarettes.

These increases have been part of a broader public health policy aimed at reducing smoking rates and covering the healthcare costs associated with smoking-related illnesses.

How the Tobacco Tax Affects Smokers’ Wallets

For many Canadians, the tobacco tax has had a profound impact on their spending. Smoking is an expensive habit, and the cumulative effect of federal, provincial, and territorial taxes means that smokers are paying significantly more for their products than in previous years.

The Average Cost of Smoking in Canada

The cost of a pack of cigarettes in Canada varies by province, but as of 2024, the average price is around $15-$18 per pack, with higher prices in provinces like Nunavut, where it can reach $25 or more per pack.

To put this into perspective, a person who smokes one pack of cigarettes per day could be spending over $6,000 per year on cigarettes alone. This figure includes both the base price of the product and the taxes applied at various levels of government. For many smokers, this represents a significant portion of their disposable income.

The Financial Burden on Low-Income Smokers

The high cost of tobacco disproportionately affects low-income individuals, who are more likely to smoke than higher-income groups. Studies have shown that low-income smokers spend a larger percentage of their income on tobacco products, which can lead to financial stress and exacerbate poverty. For these individuals, quitting smoking is not only a health benefit but also a financial necessity.

Smokers’ Attempts to Cope with Rising Costs

As the cost of tobacco continues to rise, many smokers look for ways to mitigate the financial burden. Some of the strategies include:

• Switching to cheaper tobacco products: Smokers may opt for less expensive forms of tobacco, such as roll-your-own cigarettes, which are typically taxed at a lower rate than pre-rolled cigarettes.
• Purchasing tobacco on reserves: Many smokers purchase tobacco products from Indigenous reserves, where taxes are lower or non-existent, as a way to save money.
• Buying tobacco products online: Some smokers turn to online stores, where they may find lower prices, although they still face taxation on many purchases.
• Reducing consumption: In response to higher costs, some smokers choose to cut back on the number of cigarettes they smoke or attempt to quit altogether.

 

The Health Impacts of Tobacco Taxation

While tobacco taxes have a clear financial impact on smokers, they also have a significant influence on public health. Higher taxes and, by extension, higher prices, are directly linked to reductions in smoking rates. This has important implications for the overall health of Canadians, as smoking is a leading cause of preventable diseases such as cancer, heart disease, and respiratory illnesses.

Reduced Smoking Rates

The correlation between tobacco tax increases and reduced smoking rates is well-documented. As prices rise, smoking becomes less affordable, especially for younger individuals who may not have the disposable income to support a smoking habit. The increased cost of cigarettes is one of the most effective deterrents for preventing young people from starting to smoke.

Health Care Savings

By reducing smoking rates, tobacco taxes also help alleviate the burden on the healthcare system. Smoking-related illnesses cost the Canadian healthcare system billions of dollars every year, so by discouraging smoking through taxation, the government can reduce these costs. In turn, this benefits all Canadians by freeing up healthcare resources and reducing the overall cost of care.

Future of Tobacco Taxation in Canada

As smoking rates continue to decline, the future of tobacco taxation in Canada remains a topic of debate. The federal government has signaled that it will continue to use tobacco taxes as a public health tool, with further increases likely in the coming years.

Tobacco Taxation and the Rise of Vaping

One of the challenges facing policymakers is the rise of vaping as an alternative to smoking. While vaping products are also taxed, the rates are generally lower than for traditional tobacco products. As more Canadians switch to vaping, particularly young people, the government may need to adjust its taxation strategy to account for this shift.

Potential for Further Tax Increases

It is likely that both federal and provincial governments will continue to raise tobacco taxes in the future. However, there is a limit to how much taxes can be increased before they lead to unintended consequences, such as a rise in illicit tobacco sales. Policymakers will need to balance the public health benefits of higher taxes with the need to prevent a black market for tobacco products.

Calls for Earmarking Tobacco Tax Revenue

There have been increasing calls for the government to earmark tobacco tax revenue specifically for healthcare and smoking cessation programs. While tobacco taxes generate billions of dollars in revenue, much of this money goes into general government coffers. By directing this revenue toward smoking prevention and treatment programs, the government could further reduce smoking rates and help current smokers quit.

 

Conclusion: The Real Cost of Smoking in Canada

Canada’s tobacco tax has a significant impact on smokers’ wallets, with the cost of cigarettes rising year after year. While the high cost may be a financial burden for many, it also serves an important public health purpose by reducing smoking rates and preventing future generations from picking up the habit. For smokers in Canada, understanding the full cost of tobacco, including the taxes they pay, is crucial for making informed decisions about their health and finances.

With further tax increases likely on the horizon, smokers will continue to face rising costs. However, by quitting smoking or reducing consumption, they can avoid these financial burdens while also improving their health. As Canada’s tobacco taxation strategy evolves, its impact on smokers’ wallets will remain a key topic of discussion for both policymakers and the public

 

References

Ontario.ca. (2024). Tobacco Tax. Available at: https://www.ontario.ca/document/tobacco-tax