Feds pocket $74+ million from kids' vaping

As reported here earlier, the federal Public Accounts that were tabled on the last day Parliament sat before Christmas provide details on the excise taxes collected by various federal agencies. This blog reports on the evolving role of vaping taxes as a source of federal revenues and the disproportionate amount provided by young people.

Tobacco tax revenues are down, but new vaping taxes have mostly made up the difference

In the 2023-2024 fiscal period, federal revenues from tobacco were $2.6 billion, down from $3 billion the year before. The introduction of a federal vaping taxes in the fall of 2022  however has helped the federal government to maintain its revenues from nicotine use. Vaping tax revenue grew from $184 million in its first half-year of implementation to $486 million last year. 

The combined federal revenues on nicotine products was just over $3 billion, only a little lower than in recent years.

Kids are paying 15% of federal vaping taxes

The youthfulness of Canadian vapers is documented in federal surveys of smoking and vaping behaviour, such as the last Canadian Tobacco and Nicotine Survey which was conducted into January 2023. 

For every 20 Canadians who vape, 8 are under 25 and 3 are under 19 years of age. This proportion holds with respect to both daily and occasional use, as shown in the table below. By contrast, in the general population, 9 out of 10 Canadians are over 25 years of age. 

In the absence of better data, we can use the age distribution of the vaping population to estimate the share of vaping taxes (and vaping product sales!) that are made by each age group. 

• Children aged 15 to 19 provided $74.302 million in federal vape tax revenues (15.3%)
• Young adults aged 20 to 24 provided $123.7 million (25.5%)
• Adults over age 25 provided $287.9 million. (59.2%)

This crude method likely underestimates the amount of tax paid by children. Children under 15 were not included in the CTNS survey, but some are known to vape, therefor the actual proportion of children who vape will be larger than the survey estimates. Also, the vaping tax is not equally assessed on all vaping products, with a higher rate is placed on those products (pods, disposables) that are favoured by young people.

Vape taxes can be a health intervention only if they affect affordability 

Taxes on harmful products are understood to be an effective and an efficient way of reducing consumption, which is why they are strongly supported by health experts. Tobacco taxes have a convincing history of  helping reduce smoking rates. But it is not the taxes, per se, which impact product use, but rather the resulting increase in product prices that they produce. Tobacco companies have generally increased their prices in response to new taxes, although they sometimes blunt their impact by absorbing some of the tax for a period of time. The belief and expectation that taxes will be passed on to the consumer is one reason that many health economists have not seen it necessary to include price controls with tobacco taxes. 

With vaping taxes, the expectation that prices would proportionately increase has not been met. Since taxes were introduced in Canada, the companies have been able to modify their production costs or product designs in ways that the price of vaping has fallen DESPITE the introduction of new taxes. For this reason, vaping taxes without price controls may prove to be ineffective as a health measure, although effective as a source of government revenue.

The image below displays the tax and price for one mg of deliverable nicotine sold by Imperial Tobacco in Ontario in January 2025.  From a package of 20 cigarettes that costs $14.69, a single cigarette costs $0.73 cents of which $0.37 is tax. This cigarette contains 2.4 mg of deliverable nicotine giving a tax of $0.15 and a price to consumer of $0.31 per mg of deliverable nicotine.

The nicotine in the different VUSE products made by the same company are subject to somewhat different vaping taxes, depending on volume of liquid they contain. The price of a mg of deliverable nicotine in the package of older-fashioned VUSE epods (containing 76 mg of nicotine and subject to $2.24 in taxes) is not so different than its cigarette equivalent. VUSE Pods are taxed at $0.06 cents per mg of nicotine, with a cost to the consumer of $0.26 per mg, which is about ten cents more per mg of nicotine than it was before the vaping tax was introduced. 

The nicotine in the nicotine devices introduced to the market since the federal tax came into force is less than half the price of the Vuse e-pod. The Vuse GO 8000 was introduced this past summer. It contains 300 mg of nicotine and is now subject to $13.44 in taxes. The tax per mg of nicotine  is $0.045 cents and the consumer price per mg is $0.12 cents.

In short, manufacturers were able to overcome the impact of the vaping tax by redesigning their products to deliver nicotine in a less costly way. The first generation of VUSE disposables has been withdrawn from vaping shops, to be replaced by products which have defeated the health benefit of the vape tax.