SOFT DRINK TAXATION: LEGAL CONSIDERATIONS IN INTERNATIONAL AND DOMESTIC LAW. Barbara von Tigerstrom College of Law University of Saskatchewan

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1 SOFT DRINK TAXATION: LEGAL CONSIDERATIONS IN INTERNATIONAL AND DOMESTIC LAW Barbara von Tigerstrom College of Law University of Saskatchewan

2 What are the legal considerations? Domestic law Constitutional law Legislative framework International law Human rights Trade and investment

3 Whether to implement a tax Policy considerations Effectiveness predicted impact, substitution effects, etc. Equity regressive effects, differences in impact What is informing those considerations? Economics, epidemiology, policy analysis, etc. Law? n Right to health and an obligation to promote health n Compare legal position for tax v. other measures

4 How to implement a tax Policy considerations Effectiveness what design and implementation strategy will have the greatest effectiveness? Equity what design and implementation strategy will minimize or mitigate regressive effects, promote equitable benefit? What is informing those considerations? Economics, epidemiology, policy analysis, etc. Law n National/provincial: jurisdiction, legislation n International: trade and investment

5 Legal considerations in design and implementation What does the government have authority to do? What types of measures are within / outside the authority of the Quebec government? What is the legal framework for implementing the measure? Legal basis for imposing tax, use of funds What legal issues might influence the design of a tax measure? What models would be more / less vulnerable to legal challenge

6 Jurisdiction to impose taxes Federal government jurisdiction: Constitution Act, 1867, s. 91(3): The raising of Money by any Mode or System of Taxation [«Le prélèvement de deniers par tous modes ou systèmes de taxation»] Provincial government jurisdiction: Constitution Act, 1867, s. 92(2): Direct taxation within the province in order to the raising of a Revenue for Provincial Purposes [«La taxation directe dans les limites de la province, dans le but de prélèver un revenu pour les objets provinciaux»]

7 What does this include? Federal government Income tax (personal and corporate) Excise tax (manufacturer) Customs duties Sales tax (simple or VAT) Provincial government Income tax (personal and corporate) Sales tax (simple or VAT)

8 Limits on provincial tax jurisdiction Direct taxation within the province in order to the raising of a Revenue for Provincial Purposes Direct taxation Within the province To raise revenue for provincial purposes

9 Direct v. indirect taxation Direct taxation: tax is collected from the person who is intended to bear the burden of it Income tax Sales tax Both federal and provincial government Indirect taxation: tax is collected from an intermediate person (e.g. importer, distributor, manufacturer) who will pass it on to another person (consumer) Customs duties Excise taxes (on manufacturer) Federal government only

10 What about taxes on beverages? Retail sales tax paid by consumer? yes Special tax paid by consumer? yes Special tax paid by wholesaler or distributor? maybe Special (excise) tax paid by manufacturer or importer? probably not Limits on jurisdiction narrows range of options for provincial government

11 Legislative framework Tax legislation Legislation on use of funds

12 Tax legislation Retail Sales Tax Act General sales tax: % of value, value-added tax basic groceries zero rated Alcoholic beverages: fixed amount / ml Tobacco Tax Act Cigarettes, etc: fixed amount / item or / gram Cigars: % of value (minimum taxable price) Minimum price for tobacco products

13 Existing categories Zero rated: sales of food or beverages for human consumption except Taxable: Alcoholic beverages Non-alcoholic malt beverages Carbonated beverages Non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of a natural fruit juice or combination of natural fruit juices (including reconstituted)

14 Legislation on use of funds Act to Establish the Fund for the Promotion of a Healthy Lifestyle Defined amount of proceeds of tobacco tax paid into the fund each year Funds used for specific purposes ( activities, programs and projects that foster healthy eating and physical activity, to promote social norms that encourage a healthy lifestyle, to improve services to persons with a weight problem, and to support innovation and the acquisition and transfer of knowledge in those areas )

15 Possible international trade issues Most-favoured nation (MFN) obligation: equal treatment of similar products from all countries (GATT, NAFTA) National treatment (NT) obligation: equal treatment of similar products from domestic or foreign suppliers (GATT, NAFTA) Treatment of foreign investment (NAFTA) Example: Mexico tax on HFCS-sweetened beverages

16 Non-discrimination (MFN and NT) Taxation of foreign v. domestic products Internal taxes must be applied equally to like foreign and domestic products, and not so as to afford protection to domestic production Will the tax disproportionately affect foreign v. domestic products, and/or products of particular country? If so, can you argue that they are not like products? If not, can you argue public health justification

17 Trade and investment National treatment Expropriation of investment Includes direct or indirect expropriation, measures tantamount to expropriation Can include some regulatory measures, possibly tax But high threshold for finding impact = expropriation

18 Risk of a challenge? MFN and NT: probably low, but depends on design of measures (especially impact on foreign v. domestic products) Expropriation: low Compared to other measures Labelling, product characteristics etc. GATT, NAFTA; also Technical Barriers to Trade

19 To conclude Issues of jurisdiction need to be taken into account in the design of a provincial measure Direct v. indirect tax Legislation already exists to provide a framework and models Legislation to implement the tax Legislation on the use of funds Legal challenges are not a serious risk but should be taken into account in the design of a measure