The governments of British Columbia, Ontario, and Newfoundland and Labrador have reportedly lost up to $2.47 billion in tax revenues over a span of four years due to the increase in sales of illegal tobacco, according to a report from the Convenience Industry Council of Canada. The report, which was released on Wednesday, analyzed the decline in legal tobacco sales in these provinces since 2019, juxtaposed with the growing underground market for contraband tobacco. The report stated that these illicit cigarettes are sold without adherence to Health Canada regulations, inspections, or taxes, allowing them to be sold at significantly lower prices than legal tobacco.
The report highlighted that illegal cigarette sales are even more profitable than the sale of illicit drugs, while the penalties for being caught with these illicit cigarettes are less severe. The estimated loss in tax revenue for British Columbia ranges from $215 million to $591 million between 2019 and 2022. In Ontario, the estimated loss during the same period is valued between $990 million and $1.8 billion, and in Newfoundland, the loss is between $25 million and $81 million. The report also indicated that the loss in tax revenue may be similar for other provinces not included in the analysis.
According to the report, illegal cigarette sales make up a significant portion of the total tobacco market in these provinces, accounting for up to 67 percent in Ontario, 45 percent in British Columbia, and 44 percent in Newfoundland. To address this issue, the Convenience Industry Council of Canada proposed five recommendations, including the implementation of stricter penalties for illegal tobacco trafficking at the federal and provincial levels, allocating more police resources to combat contraband tobacco, and prioritizing the issue for federal and provincial justice officials.
The Convenience Industry Council of Canada is a nonprofit organization that represents the interests of the convenience store industry, which generates approximately $54 billion annually. The report noted that increasing taxes on legal tobacco products in an effort to reduce smoking rates has inadvertently driven smokers to seek cheaper alternatives in the illicit market. Moreover, the confusing legal framework surrounding the manufacturing and sale of cigarettes on First Nations reserves has allowed organized crime groups to exploit the demand for low-cost cigarettes and traffic them to non-status individuals.
The British Columbia Ministry of Finance has previously emphasized its commitment to regulating the sale, purchase, possession, and transportation of tobacco. The ministry stated that the province strictly enforces penalties for dealing in illegal tobacco. In recent years, legal tobacco sales have seen significant declines in Newfoundland and Labrador (49.5 percent), British Columbia (33 percent), and Ontario (20.2 percent), according to the report.
The major factor fueling the growth of illegal cigarettes in Canada, as stated in the report, is the substantial price difference between legally taxed cigarettes and contraband cigarettes. A carton of 200 legal cigarettes in British Columbia costs around $155, while the same quantity of contraband tobacco is sold for between $30 and $50. Similarly, individual packages of 20 legal cigarettes in British Columbia retail for $15 to $21, but on the contraband market, they can be purchased for $5 to $7. It is important to note that purchasing tax-free, First Nations-produced tobacco products is illegal for non-reserve residents or individuals who are not First Nations.
The report concludes by highlighting that taxes account for approximately 70 percent of the retail price of cigarettes in Canada.