Question

READING RESPONSE (summarize and paraphrase please)

Can you please provide a one paragraph summary and one paragraph on if you agree or disagree with this article.

Tax low to get high: governments should keep weed taxes down

With the introduction of draft legislation to legalize marijuana by July 2018, the Liberal government is moving forward on its election promise. But as lawmakers polish the legislation to promote the best policy outcomes, they face a key challenge — they must ensure that any new tax measures encourage marijuana producers, distributors and sellers to become tax-compliant. In terms of tax policy, Finance Minister Bill Morneau has wisely urged his provincial counterparts to keep taxes low on legal pot. As discussed in a report by the Office of the Parliamentary Budget Officer, if taxes are too high, then consumers will continue to use the black market. That’s a problem given more than 300 organized crime groups in Canada currently generate roughly $7 billion a year in illegal weed. To keep the market out of the hands of the mob, the government should also reject “sin taxes” on marijuana. Those high taxes slapped on alcohol and cigarettes already encourage a black market in booze and smokes worth billions of dollars a year. Instead, pot sales should only initially be subjected to the Harmonized Sales Tax (HST) at a total combined rate of 12 per cent to 13 per cent (with the federal Goods and Services Tax rate of five per cent and an average provincial sales tax rate between seven and eight per cent). The federal government should top up its five per cent Goods and Services Tax by an additional seven per cent to share revenues with provinces that don’t have a provincial sales tax (Alberta, for example) or have a separate one that is not harmonized with the HST (like British Columbia). But even this low-tax strategy will fail unless the new regulatory regime allows for the development of a vibrant and innovative market. Here’s the main problem: Canada’s licensed medical marijuana companies — Big Pot — currently produce less than five per cent of the marijuana consumed by Canadians. The rest is provided by the black market. Legal producers face high costs The current licensing system was designed by Health Canada. It’s meant primarily to promote a product that is safe for consumption, encourages high costs due to the need for independent lab testing, quality control measures, mandatory usage of green energy sources and so on. Many of the Big Pot producers are now the largest legal marijuana companies in the world. They devote significant resources to comply with stringent regulations to produce lab-quality medical marijuana. But for smaller players, the regulations throw up barriers to entry for new businesses and reduce the potential marijuana supply for the prospective legal market. This is unfortunate, because the black market has shown signs of business savvy that would warm the heart of Adam Smith. In cities like Toronto, Ottawa and Vancouver, consumers can subscribe to online social networks run by marijuana suppliers offering bulk discounts, frequent flyer points, locally produced products, taste tests, home delivery by bike courier and product bonuses when a subscriber brings a new consumer to the network. These black market businesses, including dispensaries and marijuana collectives, are taking advantage of the fact that, with legalization on the horizon, police are generally not investigating small-scale illegal pot producers or laying charges against them. Under the draft legislation tabled by the Liberal government, most of these innovative businesses will be shut out of the legal market. That’s despite the fact they offer the only possibility of filling the demand for legal marijuana. Moreover, these new businesses are so far ahead of the current state of play in the marketplace that many consumers will continue to use their convenient and superior services instead of dealing with Big Pot’s licensed producers and tightly regulated future retailers. Non-compliance could become commonplace Yet these smaller illegal pot businesses will be reluctant to follow their legal obligation to assess, collect and remit the HST to the Canada Revenue Agency because doing so would flag their illicit activities to law enforcement. To avoid getting charged with tax evasion, a non-compliant pot business could hire a tax lawyer and file a tax return with an anonymous Taxpayer Identification Number showing all taxes on pot sales were paid or collected. Few businesses, however, are likely to follow this route, and so non-compliance with tax laws may become widespread. Keeping initial taxes and compliance costs low will encourage tax compliance. If marijuana businesses are permitted to thrive in a legal environment, they will be far more likely to pay their taxes. And once they comply and become part of the taxation system, then they’ll continue to bring in revenues to bolster federal and provincial coffers. That, in turn, should create a virtuous cycle as the new revenues can be directed at education and youth prevention as well as addiction treatment. Whatever the solution, the government needs to keep any regulations flexible so that it can monitor results and, if necessary, modify the rules to promote the best possible policy outcomes, including potential future tax hikes.

Answer 1

In order to increase their revenue, the governments should keep weed taxes low so that the companies are tax compliant as their sales would not be impacted drastically and there would be no emergence of a black market. The tax rate should be low as currently most of the sales of weed are via illegal means. However even with the implementation of a low tax regime combined with the help of federal and state governments, legal producers face high costs of production which is why their sales are low. This makes it difficult for low cost companies to enter the market via legal means. Smaller companies are ahead in terms of servicing their customers, as a result most of the consumers will continue to demand products from them vs. licensed producers who have tight regulatory measures in place. Few small businesses will convert to legal means as filling taxes would entail a law enforcement action and few will do a tax return via anonymous taxpayer identification. Thus the government will have to keep compliance costs and taxes low in order to encourage tax compliance. Helping thrive such businesses in a legal environment will ultimately increase government revenue base and bolster up spending on economic development.

I completely agree with this article as government revenue base will increase significantly if such businesses are encouraged to work in a legal environment. However, the government should spend the revenue base on generating economic development and building up communities rather than spending it as a form of revenue expenditure which will entail costs and not help the local communities thrive. By spending where the taxes have been collected will increase the corrective measures taken in such areas and indirectly reduce the consumption of such products via the black market. Keeping taxes low brings more number of smaller players into the tax base, and also reduces the black market activity. However the government will have to reduce the operational costs in order to make small businesses thrive and help them generate profits.