Pouring gas on the fire

Tobacco tax hikes announced in this week’s federal budget will deal a severe financial blow to Canadian convenience-store owners by fueling demand for cheaper illicit cigarettes, according to the Ontario Korean Businessmen’s Association (OKBA), the largest organization of independent convenience stores in the province.
The OKBA said the 2018 federal budget had announced an additional $1 in tax per carton of cigarettes, and an inflation adjustment that added another $1.29 in tax per carton.
The increases announced in this week’s budget had come just before the Ontario government was planning to introduce another $4 per carton tax hike as part of its upcoming provincial budget.
“This federal tax hike, combined with the recent provincial increase will raise a carton price by $6.29,” said Don Cha, general manager of the OKBA. “This will undoubtedly drive more convenience-store owners out of business and drive more smokers into the black market of contraband tobacco.
“Already governments lose more than $1 billion in tobacco taxes when consumers buy their products from the black market. These tax increases will cause them to lose even more money that could be put to good use.”
A study conducted late last year on behalf of the Ontario Convenience Stores Association (OCSA) revealed that nearly 40 percent of all tobacco products consumed in Ontario was illicit. According to the study, illicit cigarettes now account for 37.2 percent of all cigarettes smoked in the province. The study showed also that the level of contraband tobacco in Ontario had been rising at an ‘alarming’ rate during the past three years.
“The budget speech this week said that tobacco taxation is known to be one of the most effective ways to keep tobacco products out of the hands of young people,” said Cha. “But that’s simply not true. The reality is that repeated government tax hikes mean the price gap between legal tobacco and contraband tobacco continues to grow larger and larger, and that makes illegal cigarettes financially more available, especially to lower-income residents and minors.”
Cha said that it was hypocritical of the government to avoid overly expensive pricing for marijuana in order to prevent the growth of illegal sales. In speaking about the sale of licit marijuana recently, the prime minister had pointed out that if prices of licit and contraband marijuana were even, people would choose to buy licit products. The same standard should apply to tobacco as well, Cha added.