OTTAWA—The federal government formally rolled out details Friday of its tax plan for legalized marijuana, proposing a combined federal-provincial excise tax capped at 10 per cent, or $1 per gram, with the revenue haul split equally with provinces.

In documents that urge a “coordinated approach” between federal and provincial/territorial governments, Ottawa implicitly acknowledged that provinces could move to set excise taxes higher, but said that would fail to keep black market producers out.

And for the first time, the Liberal government provided its own estimate of what the combined tax take could be.

At the high end, the total haul — excise taxes plus the GST/HST or goods and services tax — could add up to $1 billion on a legalized market estimated at 400,000 kilograms of marijuana a year, said Bill Blair, the Liberal parliamentary secretary for justice and the point man on pot.

Blair downplayed that estimate as “very high,” but he did not provide a lowball estimate. He said overall, taxes — excise plus GST/HST — would add up to about 24 or 25 per cent of the retail market, but until pot is legalized, the government can only speculate what its size would be.

Based on the pricing scheme proposed, one gram of dried cannabis might be priced at $8 before taxes. The excise duty would add $1 to that cost, to be paid by the producer, for a subtotal of $9 before GST/HST is added. In provinces like Ontario, the 13 per cent HST is on the $9 subtotal, meaning the price goes up by $1.17, for a final price of $10.17 per gram at the cashier.

If the licensed producer is selling cannabis oil — a 60 ml bottle would cost $130 before taxes, but based on a 10 per cent excise tax plus GST/HST, the final price would be $161.59, documents say.

Prime Minister Justin Trudeau proposed a federal tax on recreational cannabis, once it becomes legal. (The Canadian Press)

Ottawa says it wants to see medical and recreational marijuana products taxed equally, saying lower taxes for one system would drive consumers there and defeat the purpose of a comprehensive scheme.

However, the finance department also admitted the possibility that provinces — which argue they bear the brunt of enforcement and health costs of a new legalized scheme — may want to levy higher taxes on cannabis.

A background document released by the finance department urges cooperation and coordination on pricing.

“Provincial and territorial governments will also have a stake in supporting the objectives of cannabis legalization by ensuring any cannabis-specific levies do not lead to prices that may indirectly promote or perpetuate the illicit market. This will mean keeping overall taxes low, with the federal government working with provinces and territories on an ongoing basis to ensure a coordinated approach,” it says. “This coordinated framework could include a federal rate, with an additional rate in respect of provinces and territories choosing to participate.”

The Ontario government said the federal proposal was a non-starter.

Premier Kathleen Wynne said she’s already made clear to the federal government that its tax regime doesn’t work for Ontario because “the burden of expense is going to be felt at the provincial and municipal level.”

“We made it very clear that the proposal for a one dollar and split 50/50, that that wasn't going to work for provinces because it's the provinces and the municipalities that are incurring the costs. So there's going to have to be a lot more discussion about what that tax regime would look like.

Ottawa says that where provinces and territories agree, federal legislation could implement the coordinated excise tax, and the Canada Revenue Agency would be responsible for administering the new tax regime. Pot producers would have to be licensed first by Health Canada, and then by the CRA “to promote compliance with the cannabis duty regime.”

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Canopy Growth Corporation, a big weed producer based in Smiths Falls, said Ottawa’s proposal falls “within the limit of an acceptable tax framework” that will allow it and other producers “to compete with the black market on price point.” But it lamented the tax on medical cannabis saying it’s “an unfair tax burden on chronically ill Canadians.”

The equal split proposal angered provinces when it was first floated in October.

The proposed duty would apply to all cannabis products available for legal sale, including fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation, according to the finance department.

With files from Robert Benzie

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