In the most recent 2013 – 2014 budget presentations, three of Atlantic Canada’s four provinces increased tobacco tax rates. In the fourth province, Prince Edward Island, a tobacco tax increase was arguably built into the provincial government’s adjustment of the tax as the province moves from a GST/PST to an HST tax system.
As can be seen in the chart below, tobacco taxes represent significant revenue for governments. And in the current fiscal climate, governments are trying to generate every extra dollar in revenue that they can.
But is that a simplistic approach to revenue management? What if tobacco tax increases are actually robbing provincial governments of valuable revenue dollars? The sale of illegal, or contraband, tobacco is reportedly at some of the highest levels ever. For the period between July 1, 2011 and July 1, 2012, 133 police seizures in Atlantic Canada of more than 5.6-million illegal cigarettes were reported in the media.
If increased tobacco taxes drive increased sales of illegal tobacco, then taxpayers are being cheated because of an increased tax burden. Honest retailers and distributors are also being cheated because of the unfair competition.
And then there’s the issue of an erosion of our social climate. Most importantly, the low cost and unregulated sale of illegal tobacco encourages youth and young adults to smoke. But we also can’t lose sight of the fact that the sale of illegal tobacco is a crime that supports and feeds additional criminal activity.
The Atlantic Convenience Stores Association has long argued that provincial economies and the health and welfare of residents would be far better off if provincial governments put more effort into reducing the availability of illegal tobacco products.