The governments of British Columbia, Ontario and Newfoundland and Labrador lost up to $2.47 billion in tax revenue over four years due to growth in illegal tobacco sales, according to a convenience industry report.
The Convenience Industry Council of Canada report released Wednesday examined the downward trend in legal tobacco sales in the three provinces since 2019, compared to the growing growth of the underground market for contraband tobacco.
“These cigarettes are sold illegally, free of taxes and duties, without Health Canada regulations or inspections, and retail for a fraction of legal tobacco prices,” the 72-page report says.
The report says there is more profit to be made selling illegal cigarettes than selling illicit drugs, but the penalties for being caught with cigarettes are less severe.
It estimated BC lost between $215 million and $591 million in tobacco tax revenue due to illegal sales between 2019 and 2022.
In Ontario, the loss during the same period was valued at between $990 million and $1.8 billion, and between $25 million and $81 million in Newfoundland, according to the report, suggesting that losses could be similar for the other provinces not included in the revision.
Illegal cigarette sales could account for up to 67 per cent of the total tobacco market in Ontario, 45 per cent in British Columbia and 44 per cent in Newfoundland.
Recommendations include tougher penalties
The convenience industry report made five recommendations, including calling for tougher federal and provincial penalties for illegal tobacco trafficking, increasing police resources to combat tobacco smuggling, and making the issue a top priority for federal and justice officials. provincial.
The Convenience Industry Council of Canada is a not-for-profit organization that represents the interests of the $54 billion-a-year industry at the federal, provincial and municipal levels.
“In an effort to reduce smoking rates, federal and provincial governments have increased taxes on legal tobacco products,” the report says. “The result? Many smokers have sought cheaper tobacco on the illicit market.”
The report says the contraband tobacco market in Canada has also continued to expand due to “a confusing legal framework” surrounding the manufacture and sale of cigarettes on First Nations reserves.
“Organized crime groups exploit this demand with low-cost, stock-manufactured cigarettes, and then traffic these products to non-status individuals,” the report says.
British Columbia’s Ministry of Finance had previously said in a statement that the provincial Tobacco Tax Act includes tough penalties for dealing in illegal tobacco.
BC strictly regulates the sale, purchase, possession and transportation of tobacco, and the province has taken measures to combat the sale and use of contraband products, the ministry said.
He said BC generated $708 million in tobacco tax revenue in 2021-2022 and $711 million in 2020-2021.
Price difference a key factor, report says
Since 2019, legal tobacco sales in Newfoundland and Labrador have fallen 49.5 per cent, 33 per cent in British Columbia and numbers have fallen 20.2 per cent in Ontario, according to the report.
“The main driver of the explosive growth of illegal cigarettes in Canada: the significant price difference between tax-paid legal cigarettes and contraband cigarettes,” the report says. “Smuggled cigarettes can be purchased for only about 40 percent of the price of legal cigarettes, paid for with taxes.”
A legal carton of 200 cigarettes in British Columbia will cost about $155, but the same amount of contraband tobacco will sell for between $30 and $50, according to the report.
Individual packs of 20 legal cigarettes in British Columbia sell for between $15 and $21, but can be purchased on the bootleg market for between $5 and $7.
“It is illegal for non-reserve residents or non-First Nations people to purchase tax-free tobacco products produced by First Nations,” the report says.
Taxes account for about 70 per cent of the retail price of cigarettes in Canada, according to the report.
