Writing in the Toronto Sun, Macdonald-Laurier Institute Senior Fellow Christian Leuprecht
“Sharing revenue with First Nations communities encourages compliance and enforcement”, writes Leuprecht. “It not only helps First Nations, it helps fight the deficit”.
By Christian Leuprecht, March 21, 2015
With so many severe fiscal challenges facing Ontario, the government will be looking for any source of revenue it can find when it delivers its provincial budget in the weeks ahead.
That’s why Premier Kathleen Wynne’s government signalled in December’s fiscal update it hopes to recoup massive tax revenues lost from the sale of contraband cigarettes, which now account for one-in-three cigarettes smoked in the province.
An Ontario government estimate from 2008 pegged tax losses from contraband cigarettes at $500 million annually.
By 2012, the Canadian Taxpayers Federation estimated that losses to Ontario’s coffers had mounted into the range of $689 million to $1.1 billion per year.
That’s a lot of money to leave on the table for a government whose stated priority is to tackle the budget deficit.
The province is to be commended for wanting to crack down on tobacco smuggling, which has many negative implications for public health and border security, in addition to lost revenues.
But the government can’t do this alone and it should find a willing partner in Ontario’s First Nations.
Akwesasne (near Cornwall), Oshweken/Six Nations (near Brantford) and to a lesser extent Tyendinaga (near Bellevillle) have been identified as hotspots for cigarette manufacturing and smuggling.
A report by the Canadian Taxpayers Federation estimated as little as 21% of allocation cigarettes sold on Ontario reserves in 2011 were properly taxed.
Why? For complex historical and political reasons, the Ontario Tobacco Tax Act, the federal Excise Act and the Criminal Code provisions relating to contraband tobacco are not enforced in Ontario.
Some First Nations people refuse to collect the provincial tax, while others believe that the federal excise tax infringes on treaties.
A solution for First Nations and other levels of government is a new taxation strategy that strikes a better balance between the interests of First Nations looking to maintain their cultural and economic ties to tobacco, and the interests of public health, non-Native cigarette manufacturers, and government revenue.
It’s time to give First Nations control of taxation on cigarettes and let them use the funds to support their own communities. There is precedent for this, although some First Nations prefer to collect “fees” rather than taxes.
Legislation in Kahnawake now requires a “Contribution Stamp” to be purchased and affixed to “all tobacco products imported, exported or manufactured within, from or to Mohawk Territory of Kaehnawake.”
Proceeds from Contribution Stamps flow to the newly-established Kahnawake Community Contribution Fund.
Similarly, the band council of Tyendinaga has introduced a $2- per-carton fee on cigarettes with the funds used for community development projects.
Aboriginal people are determined to be part of the solution.
A First Nations Excise Tax that is equal to or slightly less than the provincial excise tax to non-Native customers reduces the price gap with cigarettes off reserves.
It reduces the incentives for smuggling and all the social ills that go with it.
Sharing revenue with First Nations communities encourages compliance and enforcement.
It not only helps First Nations, it helps fight the deficit.
Christian Leuprecht, a contraband tobacco researcher, is a senior fellow with the Macdonald-Laurier Institute and a professor at the Royal Military College of Canada and Queen’s University.