• New data suggests up to 79 per cent of all tax-exempt allocation tobacco sales made on reserve ‘smoke shacks’ were likely illegal in 2011-12
• Ontario and Ottawa losing between $742 million and $1.2 billion a year in tax revenue due to contraband

OTTAWA, ON: The Canadian Taxpayers Federation (CTF) released a new report today showing that together the provincial and federal government are losing upwards of $1.2 billion dollars annually in tobacco tax revenues due to contraband tobacco sales in Ontario alone.

The report also examines the Ontario government’s Cigarette Allocation System (CAS) for on-reserve ‘smoke shacks.’ New data on the CAS has been obtained by the CTF from the Ministry of Finance through a freedom-of-information request (FOI). The CAS is a formula that dictates how much unmarked tobacco can be officially sold in reserve ‘smoke shacks,’ tax-free to Status Indians.

According to calculations done by the CTF, every smoker over the age of 15 on reserve would have to smoke 70 cigarettes per day, every day, in order for Status Indians on Ontario reserves to have legally purchased every single cigarette legally provided to smoke shacks through the allocation system.

“There are only two logical explanations here,” said Gregory Thomas, CTF Federal and Ontario Director. “Either we’re looking at some sort of unprecedented smoking epidemic on Ontario reserves, with every smoker puffing three packs a day or most of the tax-free tobacco is being sold at cut rates illegally to people who are not Status Indians.”

With one half of one per cent of Ontario’s population, Ontario reserves account for six per cent of the province’s official tobacco consumption, just through the allocation system. That does not count the sale of other contraband cigarettes, such as plastic bags of unmarked cigarettes.

The CTF is recommending the Ontario government cut in half the allocation formula for providing tax-free cigarettes to smoke shacks, negotiate a tax-sharing agreement with the bands, review current tobacco tax levels and implement a cigar allocation system.

According to the documents obtained through FOI, on-reserve smokers would have to be consuming 1,079 cigars a year, for all cigar sales to be legal. Ontario, Nunavut and the Yukon Territory are the only jurisdictions in Canada not to have a cigar allocation system for reserve smoke shacks.

“You don’t find everyone on reserve with a stogie in their mouth, telling you it’s their third of the day,” continued Thomas. “It’s clear the vast majority of cigars are being sold tax-free to people who are not Status Indians.”

“Tobacco taxes should apply to all Canadians equally. We need to fix a system that feeds a black market that supports criminal activity,” continued Thomas. “With the federal and Ontario governments both running multi-year, multi-billion deficits, they can no longer turn a blind eye to the millions in lost tax revenue they should be collecting.”

The CTF’s report, entitled How Much is Contraband Tobacco Costing Taxpayers in Ontario? can be downloaded here.