Cigarette taxes blamed for soaring demand of black market tobacco

Repeated tax hikes slapped on smokes are fuelling booming demand for contraband tobacco, a scourge that’s the No. 1 killer in recent London fires and one that’s wreaking havoc on the convenience store industry. The Ontario Liberals keep adding taxes to cigarettes in a bid to get smokers to butt out — a $4 per carton bump came in last month’s budget, with another one coming next year. But critics say the move is costing the province billions of dollars in lost tax revenue by pushing people to buy illegal cigarettes, a massive black market industry that’s controlled by organized crime.

The rate of contraband cigarette use has steadily shot up across Ontario — more than one-third of all cigarettes are now bought illegally — with southwestern Ontario singled out as having the highest year-over-year increase, according to research commissioned by the Ontario Convenience Stores Association (OCSA), an industry umbrella group.

“We’re now (reaching) epidemic levels and everybody is closing their eyes to it,” OCSA chief executive David Bryans said of the rising demand for illegal smokes. Buying illicit smokes isn’t a victimless crime, said Bryans, who blames the growing black market for causing the closing of many independent variety stores, where tobacco accounts for between 40 and 60 per cent of daily sales. “It’s hurting small business to a big degree,” he said, noting 148 Ontario variety stores have closed in the past year, up from 90 during the same period last year. An annual analysis of discarded cigarette butts at eight London sites, including malls, hospitals and the casino, suggests contraband tobacco use was at 35.8 per cent last year, up from 26.8 per cent just three years earlier. London had the 11th-highest rate of contraband cigarette use in the province. Windsor, the only other southwestern Ontario city included in the study, came in fourth on the list that was topped by Brampton, according to the research commissioned by the OCSA. London’s fire department is especially warning of the fallout of illegal butts, blaming them for four of the city’s last five deadly blazes. While store-bought smokes are made with special paper that makes them burn slower and selfextinguish, the illegal ones don’t have that safety feature, making them more likely to ignite furniture, clothing and other combustibles if left unattended. Investigators singled out black market smokes for a pair of fires last week that sent two people to hospital, one of them with critical injuries.

Blazes started by careless smoking — the No. 1 cause of fatal fire in Ontario — are more prevalent in certain pockets of the city, acting deputy fire chief Jack Burt said. “What we’re finding now is that there’s a higher concentration of contraband-related smoking fires,” he said.

So, what’s driving the booming demand for contraband tobacco? The answer is simple: price. A carton of illegal smokes sells for between $20 and $30, compared to a store-bought carton that retails for about $100. The cut-rate smokes are made illegally in Canada or smuggled into the country, where they’re sold in Indigenous communities or on the street. About 175 organized crime groups are dealing in contraband tobacco across Canada, said a spokesperson for an anti-contraband tobacco lobby group. “Any time something is priced more than people want to pay, it will create a black market,” said Gary Grant of the National Coalition Against Contraband Tobacco, an advocacy group that receives funding from tobacco companies. Grant, who travels around the country speaking to law enforcement officials, said buying illegal smokes doesn’t just cheat the taxman.

“It’s not the taxman’s money — it’s the taxpayer’s money,” he said. Contraband tobacco has cost Ontario $3.4 billion in lost tax revenue since 2013, with another $1.6 billion projected to be lost by 2020, according to a March report by Ernst & Young LLP, a global auditing firm. Opponents of illicit cigarettes say Ontario should take a page from the playbook of Quebec, where officials reduced the contraband rate from 40 per cent to about 15 per cent, the lowest rate in Canada.

Quebec slashed its rate by bringing municipal police forces into the battle against illegal smokes and allowing them to reinvest the proceeds seized from investigations into the crime. All police officers, including special constables, were also given the power to enforce the tobacco tax law.

Ontario, meanwhile, relies on the RCMP to do most of the heavy lifting when it comes to fighting contraband tobacco, with the OPP having just a handful of officers dedicated to the problem. “They have to look at the Quebec model,” Bryans said of Ontario’s policing strategy.

“It’s not working the way they ’re doing it.”