Tobacco tax hike is fuel for black market, group warns
Proponents describe it as a “no-brainer.” Jacking up cigarette taxes reduces smoking, saves lives and boosts government revenues.
But while groups such as the Canadian Cancer Society applaud the federal government’s hiking of tobacco taxes this week, others warn of “unintended consequences” — an expansion in the illicit trade of contraband tobacco, which will make cigarettes more available to underage smokers and cut into tax revenues.
“As much as you want to prevent smoking ... you have to be realistic about the situation,” said Candice Malcolm, Ontario director of the Canadian Taxpayers Federation. “It doesn’t seem like a very well-thought-out plan.”
Speaking before a group of business leaders in Ottawa on Wednesday, federal Finance Minister Jim Flaherty said the boost in tobacco taxes — effectively the first since 2002 — comes after consultation with the RCMP and health authorities. “We know 5,000 people will not die of lung cancer next year because we’re increasing this tax. … That’s worth it.”
Under the plan, the excise duty will rise by about $4 — from $17 to $21.03 — per carton of 200 cigarettes. There will also be increases for chewing tobacco and cigars.
Excise duties on tobacco products at duty-free markets will now be “consistent” with those in the domestic market.
The government expects federal tax revenues will rise by $96 million this fiscal year, $685 million next fiscal year and $660 million the year after that.
Prabhat Jha, director of the Centre for Global Health Research at the University of Toronto, called the government’s move a “home run” and said critics are basing their arguments on “bunk.”
An article by Jha last month in the New England Journal of Medicine said the World Health Organization’s goal of cutting smoking worldwide by a third by 2025 “could be achieved by doubling the inflation-adjusted price of cigarettes.”
The article said the International Agency for Research on Cancer, after reviewing more than 100 studies, “confirmed that tobacco taxes and consumption are strongly inversely related.”
It said concerns about smuggling when tobacco taxes go up could be offset with enhanced police enforcement.
Flaherty’s budget provides $92 million over five years to the RCMP for more tools to deal with contraband tobacco along the Ontario and Quebec borders — including radar, sonar and unmanned ground sensors, and long-range thermal video cameras.
An RCMP briefing document obtained by Postmedia News last year estimated that about 50 contraband tobacco manufacturers were operating on First Nations territories in Ontario and Quebec. It also said dozens of organized crime groups were involved in distributing illegal tobacco and use the profits to fund other crimes, including human smuggling and trafficking in drugs and firearms.
A report last month by the Canadian Taxpayers Federation and the Reason Foundation warned that higher cigarette taxes would drive more smokers to the black market for smuggled or illegally produced cigarettes.