Proposed Ammendments

 Proposed amendments – Enhanced stamping regime for tobacco products

Canada had issued a paper stamp to mark packages of tobacco products on which duty had been paid

until 1974, when that stamp was replaced by a non-government-issued stamp that included a cellophane

tear strip that is still in use today. A review by the Canada Revenue Agency (CRA) found that the tear strip

was, and is still, being counterfeited with increasing degrees of success.

To enhance the integrity of the tobacco tax system and to combat the contraband tobacco market, the

Government of Canada has provided specific funding to develop and implement enhancements to the

tobacco stamping regime. The cornerstone of the proposed enhancements is a new, high-tech tobacco

excise stamp.

On August 6, 2009, the Honourable Jim Flaherty, Minister of Finance, proposed legislative amendments

to the Excise Act, 2001 and the Customs Act. These proposed amendments would provide for an enhanced stamping

regime for tobacco products that would:• specify the design, manufacture, and issuance of tobacco excise stamps;

• require that security be paid for all stamps issued;

• limit the quantity issued as well as the possession of excise stamps;

• provide additional offence provisions for the unauthorized manufacture, trade, or possession of

tobacco excise stamps;

• impose additional record-keeping obligations; and

• provide for some additional regulatory authorities.

One key principle of the proposed new regime is that the Minister of National Revenue and Minister of

State (Agriculture and Agri-Food) would become the sole authority over the distribution of tobacco excise

stamps.

The CRA has developed proposals for new and amended regulations that would provide for the

administrative framework for the tobacco excise stamp. Specifically, it is proposed that:

• the tobacco excise stamps would only be issued to

o tobacco licensees under the Excise Act, 2001, and

o prescribed persons, such as importers of tobacco products;

• adequate security would have to be provided prior to the release of tobacco excise stamps:

o the security requirements would be similar to those required for tobacco licences issued under

the Excise Act, 2001,

o the security requirements for tobacco licences may also be combined with the security required

for the issuance of stamps; and

• every package of tobacco products would have to be stamped with the appropriate tobacco excise

stamp issued by the Minister:

o in a conspicuous place,

o in a manner that seals the package,

o in a manner that the stamp remains affixed to the package after it is opened,

o directly on the package, under the cellophane over-wrap, if present,

o in a manner that does not negatively affect the stamp’s security features, and

o in a manner not covering any labelling, packaging, or other information requirements under an

Act of Parliament or its regulations.

The proposed new state-of-the-art tobacco excise stamp would contain both overt and covert security

features, much like those found on Canadian currency such as the 5, 10, and 20 dollar bills. The

introduction of the proposed new stamp would allow the CRA and its enforcement partners, such as the

Royal Canadian Mounted Police, the Canada Border Services Agency, and the provinces, to more easily

detect and respond to counterfeit and illicit tobacco products.

The cost of the stamps would be borne by tobacco licensees and importers of tobacco products.

The CRA will be seeking public comment on the guidelines and directives related to the tobacco stamping

regime that have been developed on the basis of legislative and regulatory proposals and consultations.

The subjects include, but are not limited to:

• the process and procedures for ordering and approving the issuance of tobacco excise stamps;

• the possession, transportation, and use of the stamps;

• the definition of "importer of tobacco products"; and

• the accountability framework for stamps, including the reconciliation of the number of stamps

received, stamp wastage and returns, stamps that are unaccounted for, and books and records.

The proposed new tobacco stamp is expected to be implemented in 2010.

Summary of responsibilities for the enhanced tobacco stamping regime

The Minister of National Revenue and Minister of State (Agriculture and Agro-Food) /CRA

• has already selected, through a public, competitive tendering process, a stamp provider to design,

produce, and distribute tobacco excise stamps as directed by the Minister/CRA;

• approves the stamp design and its features;

• verifies the status of all tobacco licensees and prescribed importers of tobacco products;

• sets limits on the quantity of tobacco excise stamps to be issued by the stamp provider;

• receives orders for stamps;

• verifies the eligibility of the applicant (the person who orders the stamps) and either accepts,

rejects, or limits the number of stamps ordered; and

• verifies, through audits and reconciliations, the use of the stamps issued.

The stamp provider

• designs, produces, stocks, and distributes tobacco excise stamps as directed by the Minister/CRA;

• accounts for all of the tobacco excise stamps that it produces and delivers; and

• invoices tobacco licensees/importers for the cost of all stamps delivered.

The tobacco licensee/importer

• accesses a Web-based order process for the tobacco excise stamps, with other methods also

available;

• places stamp orders through a CRA order process;

• acknowledges receipt of all stamps delivered;

• accounts for all of the stamps that it receives and uses, including providing periodic reconciliation

reports;

• pays the penalty assessed for tobacco excise stamps that are not accounted for;

• pays the cost of the stamps as well as the cost of their delivery directly to the stamp provider; and

• pays all required security amounts.

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