Provinces End Dispute On How To Split Legalized Pot Tax Revenues

Legalized pot will cost Canadians about $10 a gram. Ottawa has agreed to give the provinces 75 percent of the tax revenues. This will help cover costs of setting up the new plan.

The Canadian government and the country’s 10 provinces settled a disagreement on how to split the revenues from a proposed federal tax on legalized pot sales. The agreement on the 75-25 tax revenue split came Monday during a meeting between federal Finance Minister Bill Morneau and his provincial counterparts.

The ministers pegged the cost at about $10 a gram. Each gram of marijuana would have a tax of $1 on sales up to $10 and a 10-percent tax on sales worth more than $10. Similarly, this compares roughly to what recreational marijuana dispensaries are offering.

“Our expectation is that, by keeping prices low, we will be able to get rid of the black market. However that will happen over time,” Morneau said.

“It’s important for us to be responsive to the marketplace.”

The federal government initially suggested a 50-50 revenue split. The provinces rejected it on the grounds it was not enough to help cover the extra costs of enforcing the new rules.

But even with the richer cost-sharing agreement, provincial ministers were quick to warn that no level of government will be getting rich from Ottawa’s move to legalize cannabis, due to take effect July 1.

In fact, they all warned that the costs of setting up the system to sell legalized recreational pot will far outweigh the tax revenues. Estimated to be about $400 million a year in the early years. In addition, the federal government said its costs so far at $700 million and municipalities estimate their costs at between $210 million and $335 million a year.

“Our priority is not revenue. It’s not profit. Our priority is to get off the ground and get out of the gate in a smooth transition to a new market where we’ve not been before,” said Cathy Rogers, New Brunswick’s finance minister.

Legalized Pot and The Government

Bill Moreau views on legalized pot
Finance Minister Bill Morneau speaks at The Public Policy Forum Growth Summit.

via Huffington Post

Sousa said that Ottawa is attempting to learn the lessons of other jurisdictions where cannabis has already been legalized.  Also, to help ensure that investments in policing and public health are made upfront.

“We are investing quite a bit of money in those issues,” Sousa said. “But going forward, we know there is demand for cannabis. Quite a bit.”

He predicted that tax revenues will grow “quite substantively.”

Under the revenue-sharing agreement, which will be in force for two years, the federal share will be capped at $100 million. This means any additional tax revenues will go to the provinces and territories.

What About Tax Evasion?

Legalized pot and views on panama papers
A year ago the Panama Papers dominated newspaper headlines and brought now-iconic images to TV screens around the world. Since then, investigations have continued and outrage has grown.

via ICIJ

At their meeting, finance ministers also talked about the need to make changes to crack down on tax evasion measures. Due to the recent Panama Papers and Paradise Papers exposés.

“We know there are some individuals who are moving money overseas to a country avoiding taxation. Above all, to launder money or partake in terrorist financing,” Morneau said.

Finance ministers are in agreement that action is needed to better know the actual owners of companies. “We need to be able to see into companies to know who actually owns those companies,” he said.

Morneau spoke after a two-day meeting with counterparts from the provinces. In addition, Canada’s three sparsely populated northern territories, which also agreed to the revenue split.

Ottawa, which intends to legalize recreational cannabis in July, will retain the remaining 25 percent share to a maximum of $100 million a year. Any balance over and above that limit going to the provinces and territories.