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Tax Gap of Heated Tobacco Products in Canada

Heated cigarettes were introduced in Canada in late 2016 by Rothmans, Benson & Hedge (RBH), the Canadian subsidiary of Philip Morris International (PMI), under the brand name HEETS (heated cigarettes used with IQOS devices). Products from other tobacco companies (BAT’s “glo” and JTI’s “Ploom,” for instance) do not appear to be currently sold in Canada.

The Canadian tax system for tobacco products includes a specific tax administered and collected at the national level. In addition, each province applies its own specific excise tax on all tobacco products, which varies by province. 

Federal excise taxes are collected by the revenue agency. Heated tobacco is not defined in the federal tax code and falls in the category of “other tobacco products.” For the fiscal year starting April 1, 2020, the rate for “other tobacco products” is CAD 7.76 per package of 50 grams or fraction of 50 grams if the products are sold in packs of 20 sticks. Using the fact that a pack of 20 HEETS contains about 6.1 grams of tobacco, this means a specific excise tax of CAD 0.95 per pack of 20 HEETS, if sold in a pack of 20.[1]

By contrast, the federal excise tax rate on cigarettes is CAD 0.12421 per cigarette stick (CAD 2.48 per pack of 20 sticks). 

Most provinces do not categorize HEETS as conventional cigarettes under their tobacco tax law. These provinces tax them under the “other tobacco” category, resulting in a specific excise tax based on the weight of tobacco. As of 2020, only one province (British Columbia) has established a separate tax category for these products.

As of Oct 2020, with the exception of British Columbia, the excise tax rates on heated tobacco varied between CAD 0.15 per gram in Quebec (equivalent to CAD 0.91 per pack of 20 sticks) and CAD 0.41 per gram in Alberta (about CAD 2.52 per pack of 20 sticks), and averaged CAD 0.3 per gram (about CAD 2.1 per pack of 20 sticks). This contrasts with the excise tax on conventional cigarettes which represents CAD 5.46 per pack of 20 sticks on average, and varies between CAD 2.98 per pack in Quebec and CAD 7 per pack in Manitoba.[2] 

The province of British Colombia is an exception. On Aug 1, 2020 British Colombia introduced a category for “heated tobacco products” subject to an excise tax based on the number of sticks, with the same rate as that on cigarettes, implying equivalent taxation between the two products (CAD 5.9 per pack of 20 sticks of heated tobacco or conventional cigarette).  This effectively resulted in a nearly 2.5-fold increase in the province’s excise tax on heated tobacco.

The maps show tax and price information for each province, as well as the country average.[2]  


Price (Pack of 20), Local CurrencyExcise Tax (Pack of 20), Local CurrencyExcise Tax Burden (Pack of 20)
Province/TerritoryCigarettesHeated Tobacco ProductsCigarettes Heated Tobacco Products Cigarettes  Heated Tobacco Products   Tax Gap (PP)
British Columbia17.4414.638.386.8548.1%46.8%1.3
Alberta15.809.237.983.4650.5%37.5%13.0
Saskatchewan16.558.547.882.5947.6%30.4%17.3
Manitoba19.058.799.482.7249.8%30.9%18.9
Ontario14.337.956.182.0743.1%26.1%17.0
Québec13.507.775.461.8640.5%23.9%16.6
New-Brunswick16.708.727.592.5045.4%28.7%16.7
Nova Scotia17.9110.008.393.3946.8%33.9%13.0
Prince Edward Island17.318.897.992.6346.2%29.5%16.6
Newfoundland and Labrador17.909.078.382.7546.8%30.3%16.5
Northwest Territories16.598.098.562.6151.6%32.2%19.4
Nunavut16.489.138.483.3951.5%37.1%14.4
Yukon16.488.328.482.7851.5%33.4%18.1


Sources:

Federal rates: 

Provinces:

More information on Federal and Provincial Prices and Excise Taxes on Tobacco Products:


[1] Physicians for a Smoke Free Canada assume an equivalency ratio of 6.2 grams of tobacco per pack of heated tobacco products. For consistency across countries, CTFK’s interactive maps use the an equivalency rate of 0.305 gr per stick, as found from several other sources including PMI. For more details, see methodology.

[2] See methodology for details on the calculation of tax and prices in states other than Ontario.

Last Updated Feb. 22, 2021