Governments raked in $186 million in taxes on cannabis trade in first five months of legalization

Canadian federal and provincial governments raked in $186 million in tax revenue from the sale of cannabis in the first five and a half months following legalization, according to new Statistics Canada data — the first of its kind.

The tax earnings came from both excise taxes and general taxes on goods and services (GST), and were distributed almost evenly between the two kinds of taxes.

Between last October and the end of March this year, provinces came away with excise tax revenue totalling $79.1 million, while the federal government earned $18.8 million.

Federal GST in that same time period came to $35.5 million, while provincial tax earnings from the sale of cannabis was $52.7 million.

The government charges an excise tax of 10 per cent on the sale price of cannabis, or $1 per gram, whichever is greater.

Provincial governments reaped the bulk of this revenue due to a pre-legalization agreement between provinces and the federal government that saw 25 per cent of excise tax revenue going to Ottawa, and the remaining 75 per cent to the provinces.

Ottawa has previously proposed a 50/50 revenue split but received significant pushback as provinces argued that they would bear the financial brunt in regards to setting up a retail system, and potential policing and health care costs.

Early data showed revenue from excise taxes increasing on a quarterly basis — excise taxes increased 12.4 per cent in the first quarter of 2019 from the fourth quarter of 2018 due to stronger sales by licensed producers to retail distributors, according to Stats Can.

The agency predicts that excise taxes will continue to rise in the second half of the year, as more cannabis stores start opening across the country.

Growing sales of cannabis also led to an increase of 68.1 percent in GST revenue for the federal government and provinces between the last quarter of 2018 and the first quarter of 2019.

Critics of the excise tax system on cannabis have long argued that the policy is counter-intuitive to the government’s overall goal of eliminating the black market because it raises overall cannabis prices on the legal market, dis-incentivizing consumers from buying legal weed.

Some licensed producers, like Aurora Cannabis Inc., and CannTrust Inc. absorb the excise taxes charged on medical cannabis and are currently lobbying the federal government to remove them altogether.

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