Members of Canada’s Frontier Duty Free Association met with high-ranking government officials in Ottawa earlier this month to discuss the challenges facing Canada’s duty free stores, and petition for policy changes needed to support the industry’s competitiveness.
TMI spoke with FDFA Executive Director Barbara Barrett about the specific policy changes for which the Association is advocating.
The FDFA, which represents Canada’s land border duty free stores, says that new data shows cross-border travel by Canadians has dropped more dramatically than previously understood. Some estimates pointing to declines of over 40% year-over-year, and even steeper drops in key travel corridors.
But not only are the border stores suffering from the decline in cross-border traffic, they are also being penalized by a policy framework that places Canadian operators at a structural disadvantage relative to U.S. competitors, the Association maintains.
The main issue has to do with the imposition of excise taxes on tobacco products, explains Barrett.
Barbara Barrett
These excise taxes – which amount to nearly C$39 per carton of cigarettes, significantly increases the cost over the price on the U.S. side of the border, which has no such tax.
This tax disparity significantly affects the competitiveness of Canadian stores vis a vis those on the U.S. side of the border.
“Even though the duty free stores are an export business, this tax is put on at the manufacturer level, and the stores pass it on to the customers on the Canadian side. For all other export industries in Canada, the excise tax is collected at the border upon return into Canada,” says Barrett.
“We are asking the government to treat us like they treat every other export channel in Canada, and have the tax collected when travelers return to Canada. If the intent is to keep that tax money within the country, it isn’t working, because Canadians are just buying across the border and the sales are going to the U.S.
“Furthermore, the tax itself lies in the face of the model of our stores — because we are supposed to be tax and duty free. If we have this tax on this one product, we’re really worried that taxes could be added to other product categories.”
The excise tax was originally imposed on tobacco products in the Customs Act of 2001, confirms Barrett.
“The excise tax has been a problem for more than 20 years but we didn’t advocate against it before. We really ramped up the advocacy because of the situation that we are in now, where leveling the playing field with the U.S. really has never been more important.”
Despite high-level agreement on this issue, operational-level officials are resistant to change, she says.
A second issue on the FDFA agenda is a request for financial support through tariff relief programs, which the Canadian border stores do not currently qualify for.
“There are tariff relief programs available to small and medium-sized businesses across Canada. The Tariff Relief Program is distributed through the regional development agencies across Canada, and we don’t qualify for them for a number of reasons, partly because we’re not directly affected by tariffs. However, as soon as the tariff and the 51st state rhetoric started, we saw an immediate effect on our businesses.
“Each development agency across Canada has different qualifications, but we don’t qualify. So, what we’re asking is either allow us to qualify for the program or create a stand-alone program for our industry. In either event, this would not help all of our stores, whereas changing the tax collection legislation would help everyone and would help long term.”
