Meeting between Health Canada and the Tobacco Industry – September 19, 2024

Subject(s):

Consultation Session on the Proposed Tobacco Cost Recovery Framework

Date:

September 19, 2024

Participants:

Health Canada (HC) presenters

• Sonia Johnson, Director General, Tobacco Control Directorate (TCD)
• Tim Appleby, Director, Office of Policy and Strategic Planning (OPSP), TCD
• Manager, Cost Recovery, OPSP, TCD

Industry representatives

• Kyle Wilcox, General Manager, Brigham Enterprises Inc.
• Colm O'Shea, Executive Vice President, House of Horvath Inc.
• Nelson Ferreira, Accounting Manager, House of Horvath Inc.
• Ryan O'Shea, Inventory Coordinator, House of Horvath Inc.
• Sabrina Chartrand, Senior Government and Regulatory Affairs Manager, Imperial Tobacco Canada
• Steve Lamont, Senior Regulatory Counsel, Imperial Tobacco Canada
• Elaine McKay, Head of Corporate Affairs and Communications, JTI-Macdonald Corp.
• Brittney Green, Regulatory Affairs Manager, JTI-Macdonald Corp.
• Diane Meulemeester, General Manager, North Shore Tobacco Canada Inc.
• Jasmine Odlin, Director, Government and Corporate Affairs, Nuvona
• Sabrina Sotiriu, Federal Lead, Government and Regulatory Affairs, Rothmans Benson & Hedges Inc.
• Katherine Ridings, Regulator Compliance Supervisor Canada, Rothmans Benson & Hedges Inc.
• Mark Draper, Director, Public Affairs, Scandinavian Tobacco Group
• Eric Pichet, Business Intelligence & Governmental Affairs Manager, Scandinavian Tobacco Group

Introduction:

The Tobacco Control Directorate (TCD) invited tobacco industry representatives to a consultation session on the proposed approach to the tobacco cost recovery framework. On August 1, 2024, the Department launched a public consultation to solicit feedback on a proposed approach to recovering the federal government's costs for certain tobacco-related activities. The public consultation closed on October 10, 2024.

TCD reminded participants that this meeting is subject to disclosure as per Health Canada's Openness and Transparency policies. In the interest of transparency, the Department stated that it would be making a record of the meeting publicly available. The handling of information and privacy notice was mentioned and acknowledged.

Health Canada also referred to Article 5.3 of the World Health Organization Framework Convention on Tobacco Control (WHO FCTC), its international obligation to protect tobacco control policies from the vested interests of the tobacco industry. Participants were also informed of this policy in the invitation, and accepted these terms by registering to the event.

Subjects:

TCD welcomed participants and stated the objective of this consultation session was to provide an overview of the proposed tobacco cost recovery framework and answer questions about the proposal. Health Canada said that, the feedback received throughout the public consultation will be reviewed and considered before finalizing the regulations that will implement the tobacco cost recovery framework.

TCD presented the background and next steps regarding the proposed approach to the tobacco cost recovery framework.

• The Government of Canada committed to "require tobacco manufacturers to pay for the cost of federal public health investments in tobacco control" in the Minister of Mental Health and Addictions and Associate Minister of Health's 2021 mandate letter, Budget 2023, the 2023 Fall Economic Statement, and Budget 2024.
• On June 20, 2024, the Fall Economic Statement Implementation Act, 2023 (Bill C-59) and the Budget Implementation Act, 2024, No. 1 (Bill C-69) received Royal Assent. These Bills included legislative amendments to the Tobacco and Vaping Products Act (TVPA).
• The legislative amendments in Bill C-59 provide the Minister the regulation-making powers necessary to develop, implement, and administer cost recovery frameworks to recover the costs of federal tobacco and vaping activities.
• The legislative amendments in Bill C-69 allow the provision of certain customs information to the Minister for the purpose of the administration and enforcement of the TVPA. They also allow Health Canada to disclose information collected under the TVPA to any federal minister for specific purposes.
• Bill C-69 also amended the Excise Act, 2001 to allow certain information collected by the Canada Revenue Agency (CRA) to be shared with Health Canada for the purposes of the administration or enforcement of the TVPA.
• Lastly, Bill C-69 amended the TVPA to allow Health Canada to incorporate by reference in the regulations documents developed by Health Canada that would be used for cost recovery purposes, in a version that can be amended from time to time.
• Health Canada is proposing the introduction of a new variable annual charge to be paid by designated manufacturers. The annual charge for each designated manufacturer would be proportionate to their tobacco product domestic market share in the previous fiscal year (or from April 1 to March 31).
• Health Canada is proposing to recover the costs of certain tobacco activities related to carrying out the purpose of the TVPA undertaken by Health Canada, the Public Health Agency of Canada, and Indigenous Services Canada.
• All designated manufacturers would be required to submit a statement of tobacco product sales and revenue each fiscal year, by no later than April 30. This statement would provide data on the previous fiscal year's domestic tobacco product net sales revenue.
• By October 1 of each fiscal year, invoices for the annual charge would be sent to designated manufacturers whose net sales revenue for the previous fiscal year is equal to at least 0.001% of the total net sales revenue of all designated manufacturers for that previous fiscal year.
• Designated manufacturers would have to pay the invoice in full no later than October 31 of the same fiscal year in which it was received.

The Chair then opened the floor to questions.

Cost base

• Industry representatives asked about guarantees that future cost budgets for federal tobacco programs will not increase once manufacturers are responsible for paying for them.
  • TCD explained that, as is currently the case, any increase in allocations for tobacco and vaping activities would require parliamentary approval (e.g., through a Budget). If Parliament decided to increase funding for federal tobacco and vaping activities, Health Canada could look to appropriately increase the amount to be recovered and work to advise charge payers of any changes.

Illegal market

• Industry representatives asked if the payment requirements of reporting manufacturers will be reduced to reflect the market share of illicit products and if Health Canada will take steps to enforce proper reporting and payment by illicit manufacturers.
  • TCD explained that the statement of sales and revenue submitted by all designated manufacturers would not take into account the size of the illegal market.

License fee

• Industry representatives asked if contributing manufacturers are considered to have a license fee.
  • TCD clarified that there is currently no pre-market review or authorization of tobacco products under the TVPA. Health Canada is not introducing a licensing or authorization program as part of this proposal, therefore there is no licensing fee.

Timelines

• Industry representatives asked for clarification regarding the timeline for regulations, including when to expect publication in the Canada Gazette and finalization.
  • TCD clarified that following the consultation period ending on October 10, 2024, the Department will analyze feedback received and may hold additional consultations, as needed. TCD mentioned that it is currently anticipated that we could start recovering costs for the included tobacco-related activities incurred throughout the upcoming fiscal year, 2025-26. With this timing, the first invoices would be sent by October 2026.

Taxes

• Industry representatives asked if the tobacco cost recovery charge would be tax deductible.
  • TCD committed to investigating this matter further.

Total net sales

• Industry representatives asked if Health Canada can consult with the CRA to seek information on the total net sales of all tobacco products in Canada.
  • TCD reconfirmed that in Bill C-69, the amendments to the Excise Act, 2001 allow certain information collected by the CRA to be shared with Health Canada for the purposes of the administration or enforcement of the TVPA.

Transparency

• Industry representatives asked what part of the process would be published (e.g., list of manufacturers, annual contributions per manufacturer).
  • TCD explained that the amendments to the TVPA have an element of transparency and include a provision that the Minister must make available to the public information relating to the fees and charges. Any information that would be made public by the Minister would be prescribed in the regulations. Furthermore, Health Canada would be responsible for reporting on costs and revenues via Health Canada's annual Departmental Fees Report.

Vaping cost recovery

• Industry representatives sought further information on when the cost recovery framework would be extended to vaping product manufacturers.
  • TCD reconfirmed that the tobacco and vaping industries have different considerations and require separate cost recovery regimes. Prior to developing and implementing a vaping cost recovery framework, Health Canada will gather lessons learned from the development and implementation of the tobacco cost recovery framework and examine the impacts of recent federal regulations on vaping products.

In closing, the Chair thanked participants for their time and their questions.

Conclusion:

The consultation session was then concluded.

Documents:

• Presentation as prepared by TCD