Tax gap for Federal Excise Duty on Cigarettes and Payment Tax Gap Reports

Backgrounder

The Canada Revenue Agency (CRA) has published a series of studies on Canada's tax gap.

The Canada Revenue Agency (CRA) has published a series of studies on Canada's tax gap. The tax gap is the difference between the taxes that would be paid if all obligations were fully met in all instances, and the tax actually paid and collected. A dedicated unit was established at the CRA to examine different parts of the gap.

The CRA has followed through on its commitment to estimate the tax gap and to publish these estimates. It will continue to engage with external experts and stakeholders to ensure Canadians are informed about tax compliance and collection.

Tax gap for Federal Excise Duty on Cigarettes (December 2020)

The CRA's sixth report in the tax gap series focuses on federal cigarette excise duties. Key highlights include:

• Tax gap: The report estimates the excise duty gap for cigarettes using two methods which rely on administrative tax data and external data sources.
  • Based on the first method called gap analysis, the federal excise duty gap for cigarettes was estimated to be about $483 million for tax year 2014.
  • An alternative approach, an econometric model, was also used to estimate the gap. It estimated the federal excise duty gap for cigarettes to be about $490 million for tax year 2014.
  • Since the two estimates are relatively close in dollar value, an average was used (each was given equal weight).
  • The federal cigarette duty gap is estimated to be around $486 million for tax year 2014. This represents 16% of cigarette excise duty revenue, or about 4% of the overall federal excise duties, taxes and other specific levies revenue.