Think Canada’s “tampon tax” is gone? Think again

CSCB has confirmed with CBSA that these products will be zero-rated as of July 1; however, additional information, including the GST code to be used, is not available.

The federal government recently announced that it is killing the “tampon tax,” effective July 1st, by removing the GST on products that are “marketed exclusively for feminine hygiene purposes.” This move, however, did not kill all the taxes on tampons, as a Kafkaesque set of import tariffs remain on these items which ties up importers in significant amounts of red tape and generates at most $4 million in tax revenue for the federal government.

Determining if tampons are subject to tariffs and related products is not a trivial task. In fact, the proper tariff classification for panty liners was once the subject of a case at the Canadian International Trade Tribunal. The first step for an importer is to obtain the correct tariff code from a 1,577-page Customs Tariff, which is not always simple. Fortunately, in this case, obtaining the code was relatively straight forward, as sub-heading 9619.00 covers “Sanitary towels (pads) and tampons, napkins and napkin liners for babies and similar articles, of any material.” Within that sub-heading, there are three tariff items that apply to pads and tampons, two of which have tariff rates above zero...

Importers must pay a 12% tax on goods falling under tariff item 9619.00.92 and a 7% tax on goods falling under tariff item 9619.00.99. The importer may be able to use a preferential tariff treatment to reduce the tariff on these items (often to zero), as shown in the far right column. These tariff treatments include UST (NAFTA United States Tariff), and the GPT (General Preferential Tariff), the latter of which received a great deal of attention when dozens of countries were removed from Canada’s GPT list in Budget 2013. Importers must jump through a number of hoops to use a preferential tariff treatment, including obtaining (and retaining for several years) a “certificate of origin” from the exporting company, proving that the item meets the country-of-origin rules for the preferential treatment. These rules are far from simple, running into the hundreds of pages for each individual preferential treatment...

...Yes, the tariff code contains tampon taxes.

To determine how much revenue tampon tariffs raise for the government, I consulted the World Bank’s World Integrated Trade Solution database. Their data showed that Canada imported approximately $620 million worth of items from sub-heading 9619.00 in the year 2013, which includes diapers and other items along with tampons and pads (the data is not available at a more granular level). The World Bank estimates that this sub-heading generated only $4.2 million in (estimated) tax revenue for the Canadian government, as 91% of Canada’s imports of these items were manufactured in the United States and are eligible for tariff free status under NAFTA, though this requires companies obtain certificates of origin and wade through NAFTA rules-of-origin regulations that are over 500 pages long.

Canada has killed one tampon tax, but there is still more work to do. Canada’s tariff code contains a tampon tax that buries our importers in red tape and generates very little tax revenue. Let’s use this as an opportunity to clean up Canada’s antiquated and unnecessarily complicated tariff regime.

This has been excerpted from the 10 June 2015 article by Mike Moffatt for Canadian Business.