On behalf of 1000’s of family run convenience stores in Ontario, the OCSA is reaching out to the Ontario government and all MPP’s to refocus on contraband tobacco as it damages every convenience store, infiltrates every community and avoids paying Provincial tobacco taxes and HST through the organized network.
Convenience stores sell 95% of all legal cigarettes making up 45-70% of daily sales and we continue to see the closing of five convenience stores a week in Ontario.
We need your help!
• Independent studies suggest Ontario is losing upwards of $1 billion annually in tobacco tax revenue due to illegal tobacco, and the Government’s own estimates are $750 million.
• A December 2020 report from Ernst & Young Canada showed the revenue potential if the province takes action to address illegal tobacco.
• This remains an organized crime issue, with ties to gangs, guns, and drug trafficking.
• The problem should be addressed through a combination of fiscal prudence, legislative changes to facilitate enforcement, resources for enforcement and federal-provincial coordination.
• Quebec has implemented a very successful model built around the above strategy that has reduced its illegal tobacco market share from approximately 40% to under 15%, without setting foot on First Nations territory.
• Issues are somewhat different in Ontario, making it necessary to define an “Ontario model” to achieve similar results as in Quebec.
Factors Behind Illegal Tobacco Growth
• Governments have driven consumers to contraband products due to excessive taxation, regulations and lack of focused enforcement on illicit trafficking of tobacco by organized crime groups.
• Per above, Governments also impact supply through lax enforcement. Successive Ontario Governments have not taken meaningful enforcement actions to address illegal tobacco. Ontario vs. Quebec or even Manitoba
• While Ontario’s illegal tobacco rate sits around 35-40%, Quebec has seen its rate drop from 40% to under 15%.
• This is due to following strategic approach: fiscal prudence (i.e., no recent tax increases); enforcement legislation (Quebec’s Bill 59) introduced in 2009; and sustained investments in dedicated enforcement.
• Quebec injects approximately $20 million annually solely dedicated on illegal tobacco enforcement and has more than 70 full time law enforcement investigation officers assigned to a dedicated task force. That investment has delivered at least a 10:1 return, with tobacco tax revenues alone increasing by $180 million annually.
• The Quebec enforcement model does not involve any on-reserve action. The Challenge
• To develop a “Made in Ontario” solution based on the proven success strategy outlined above.
• Issues were raised within the current Government that identified the Quebec model as being unrealistic in Ontario, primarily because of the main sources of illegal tobacco supply.
• Accepting that, the Government still must address the issue with its own initiatives to bring the illegal trade under control and regain extraordinary tax losses that benefit organized crime.
• The Ontario solution should be built on the following; fiscal prudence, legislative changes to facilitate and augment enforcement, and dedicated resources (money and staff) invested in enforcement, while demanding Federal action.
#1: Fiscal Prudence
Tobacco taxes should not be raised until illegal tobacco levels have dropped significantly, and new enforcement measures are put in place.
Options include empowering all police officers to enforce the Tobacco Tax Act by making amendments to the following clause to enable them fully as Ministry of Finance authorized.
One key amendment is to “Section 29 – prohibition re unmarked tobacco products,” Subsection (4) “Seizure of unmarked tobacco products in plain view”, by removing the “in plain view” provision in the Act (see below).
#3: Money for Enforcement
Quebec spends at least $20 million per year on tobacco trafficking enforcement, and that has delivered, at minimum, a 10:1 return ($180 million in increased tobacco tax revenue, plus indirect returns) as the province’s illegal tobacco rate has dropped from over 40% to under 15% over past decade.
Conversely, it is estimated Ontario spends $2-3 million annually on enforcement and the illegal tobacco rate has been stuck in the 35-40% range for several years now.
#4: Federal-Provincial Coordination
The current Federal Government has done nothing to address illegal tobacco – not mentioning it since taking office. Ontario needs to demand the Federal Government come to the table with solutions.
Illegal Tobacco Consultation
The 2019 Fall Economic Statement promised to consult stakeholders on illegal tobacco. This process needs to conclude with a public announcement about its conclusions and a timeline for implementation of recommended actions.
The solutions already exist, fiscal prudence, legislative changes to facilitate enforcement, resources for enforcement and federal-provincial coordination.