Smoke shacks situated on Ontario Indian reserves have been doing a booming business in tobacco. Some of that tobacco is sold legally, some is not.
There’s nothing illegal about selling a Status Indian on an Ontario reservation a pack of smokes without the charging the hefty $3.18 in provincial excise taxes and HST. There’s nothing illegal about a reserve smoke shack selling a person who is not a Status Indian a box of cigars, provided they pay the federal tax, provincial tax and HST. However, when those who are not Status Indians are purchasing tax-free cigarettes, this is illegal.
And unless there’s some sort of unreported, unprecedented, smoking epidemic going on with Status Indians, the Canadian Taxpayers Federation (CTF) has new data demonstrating that not all sales of tobacco on reserve in Ontario could possibly be legal.
The data, obtained by the CTF through a Freedom-of-Information request, looks at the amount of tax-free tobacco that was provided to reserve smoke shacks through the Ontario government’s allocation program. The Cigarette Allocation System is intended to ensure reserve smoke shacks have enough tax-free smokes to cover the needs of Status Indians.
And boy, do they.
The numbers show that, officially, Status Indians in Ontario purchased the equivalent of 29 million tax-free packs of cigarettes in 2011-12. That’s enough tax-free tobacco to provide every smoker on-reserve 70 cigarettes a day – almost three packs.
Of course, Status Indian smokers aren’t plowing through three packs a day. Neither are they going through more than a thousand cigars a year each – another absurd statistic our number crunchers uncovered.
What’s actually happening is that somebody is making a lot of money illegally selling excess tax-free allocation cigarettes to those who are not Status Indians, all while Ontario’s treasury bleeds. And these contraband sales don’t even include the illegally produced or smuggled cigarettes, or those that are being sold by the brick in plastic bags.
The CTF estimates that up to 79 per cent of all tax-free allocation cigarettes intended for legal sale to Status Indians is actually being sold illegally to those who are not Status Indians.
Yet, the sale of contraband allocation cigarettes is only a part of the larger contraband issue in Ontario.
Using a couple different estimates, the CTF has further calculated that the Ontario and federal governments are losing somewhere between $742 million and $1.2 billion in tobacco tax revenue annually, just from contraband cigarettes in Ontario.
There are many possible solutions to the contraband problem in Ontario. Clearly it’s time to overhaul the Cigarette Allocation System, introduce a Cigar Allocation System and implement a better audit process.
Maybe it’s time to share a piece of the action with reserve band councils and aboriginal governments; let them collect taxes on tobacco sales on reserve, so the money goes into health care, water treatment, housing and schools, rather than the pockets of smoke shack operators and criminal gangs. It’s worked in a handful of reserve communities that have tried it in PEI, New Brunswick and Quebec.
And maybe it’s time to take a look at tobacco tax levels in Ontario, so law-abiding smokers don’t pay double what their neighbours to the south are paying, just for the peace of mind of knowing that their money is going to the federal and Ontario governments, and not organized crime.
Tobacco taxes are a fact of life and they are an effective way to dissuade youth from smoking. But what good is a system where two-thirds of Ontarians pay $5.24 in taxes every time they buy a pack of cigarettes, and the other third pay nothing by accessing the black market?
With Ontario’s governing party in the midst of choosing a new leader, and with a general election expected within the year, maybe it’s time for politicians from every party to seriously tackle contraband tobacco trafficking, and stop blowing smoke.
