imperial tobacco canada - Tax hikes, denial and inaction: Provinces put out the welcome mat to illegal traffickers

Canada’s illegal tobacco industry gets a boost from provincial governments

MONTREAL, April 15, 2009 – Imperial Tobacco Canada is shocked by the latest in a series of counterproductive provincial and territorial indirect and direct tax increases on tobacco from the governments of Alberta, Ontario, Manitoba, British Columbia, the Northwest Territories and Quebec that make these provinces even more attractive for Canada’s flourishing illegal tobacco industry.

“In times of economic crisis, increasing tobacco taxes may seem to be an easy way to mitigate planned government deficits,” said Richard Hodgson, chief financial officer of Imperial Tobacco Canada. “But, for the majority of the provinces, it serves only to fuel the growth of illegal tobacco sales. The reality, in the long-term, is likely to be larger deficits for some provinces due to higher levels of uncollected and delinquent tobacco tax.”

On April 7, just as the federal government was announcing measures to combat illegal tobacco sales, the Government of Alberta announced that it would increase the tax on a carton of 200 cigarettes by $3.00. Manitoba, British Columbia and the Northwest Territories have also announced tobacco tax increases in their respective provincial and territorial budgets. In line with its Quebec Sales Tax rate change, Quebec announced a nominal tobacco tax increase in 2011 in its 2009 budget.

In its recent budget, the Government of Ontario announced a new harmonized tax structure that would apply equally to tobacco products. Currently, tobacco products are not subject to Ontario’s Retail Sales Tax (RST), as the RST was combined with the Ontario Tobacco Tax in 2002. If nothing is done to keep existing tobacco prices unchanged for consumers there will be an increase of between $5 and $6 to the price of a carton of cigarettes.

Many of these tax increases will not have the desired effect and will undermine efforts to stop the growth of illegal tobacco sales.

For example, in Ontario the excessive tax increases from 2002 to 2006 have led to an explosion of illegal tobacco sales (48 per cent of tobacco purchased in Ontario is illegal), an increase in the number of smokers (according to Health Canada’s Canadian Tobacco Use Monitoring Survey), and a three year track record of ever declining government tobacco tax revenues.

“Reassuringly, the federal government and the Government of New Brunswick have demonstrated that they do not want to make a bad situation worse and have recognized that short-term tobacco tax increases without effective enforcement will not result in long-term increased government revenue,” continued Mr. Hodgson.
“An eight per cent increase in tobacco prices is likely to fuel the already out-of-control illegal tobacco market in the province.”

Imperial Tobacco Canada is encouraged that the Honourable Jean-Pierre Blackburn, Minister of Revenue, recognized the problem on April 7 in Montreal and suggested measures to address this crisis. Imperial Tobacco Canada is optimistic that the sale of illegal tobacco will become a priority item for the federal government. The company calls on all levels of government to work together to implement effective and long-term solutions.

The sale of illegal tobacco has reached crisis levels in Canada. One in three cigarettes purchased in Canada is illegal. The numbers reach even more alarming levels in Ontario and Quebec where the problem is most acute. Forty-eight per cent of all cigarettes purchased in Ontario is illegal, while the figure for Quebec is 40 per cent.

- Tax hikes, denial and inaction: Provinces put out the welcome mat to illegal traffickers (23 kb)

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