----- Original Message -----
From: Russell Diabo
To: Undisclosed-Recipient:;@...
Sent: Sunday, November 15, 2009 7:49 PM
Subject: $2 billion in tax revenue up in smoke



Back to $2 billion in tax revenue up in smoke
$2 billion in tax revenue up in smoke
November 15, 2009

Robert Benzie


Bags hold contraband cigarettes seized by RCMP in Cornwall.

RANDY RISLING/TORONTO STAR

One in two cigarettes smoked in Ontario is illegal, robbing provincial and
federal coffers of more than $2 billion a year and raising concerns about
children gaining easy access to tobacco.

"There's absolutely no doubt that there's an incredible amount of revenue lost
both in the province of Ontario and Quebec and to the federal government as
well," provincial Community Safety Minister Rick Bartolucci said in an
interview.

A study for the Canadian Tobacco Manufacturers' Council found that illegal
cigarette purchases in Ontario have climbed to 48.6 per cent, followed by Quebec
with 40.1 per cent.

But how do we know? Enter the squad of "butt pickers."

In a separate investigation last month, the National Coalition Against
Contraband Tobacco collected by hand 19,770 cigarette butts near 110 high
schools, and discovered 30 per cent were illegal.

The coalition, which was launched by the Canadian Convenience Stores
Association, whose members lose an average of $115,000 in sales annually due to
illegal cigarettes, analyzed 14,064 butts from 75 Quebec high schools and
concluded 45 per cent were contraband.

Because each legal cigarette has a distinctive marking on the filter,
investigators are able to pinpoint hot spots for untaxed and unregulated smokes.

Ontario and Quebec represent about 95 per cent of illegal tobacco sales in
Canada, and about 33 per cent of cigarettes sold in Canada are contraband,
according to the manufacturers' council study.

Bartolucci said the problem is so widespread because smokers do not realize
purchasing untaxed cigarettes for as little as $20 for a carton of 200
cigarettes - compared to about $75 for legal products - is against the law.

Originating on First Nations reserves, the contraband smokes are readily
available in most towns and cities.

"People have to understand the severity of buying, of making ... and what damage
it does do," said Bartolucci.

Government officials and antismoking activists are alarmed because the cheap and
easily available cigarettes will enable more children and teens to pick up the
habit.

Imperial Tobacco Canada's Catherine Doyle said "it's out of control right now,"
costing governments $2.4 billion in missed tax revenue last year.

"You've got a whole bunch of different groups speaking out and agreeing that
something has to be done, but the government is failing to act," said Doyle.

"It's not every day that you get all these groups - particularly when you're
talking about health groups and tobacco control groups and the tobacco industry
- all speaking out and wanting something to be done about this problem," she
said.

The Canadian Cancer Society is watching the situation closely. Rob Cunningham, a
senior policy analyst at the Canadian Cancer Society, said widespread access to
cheap cigarettes is undermining the effectiveness of tobacco control legislation
and programs.

"Higher prices are the most effective means of discouraging smoking, especially
among teenagers, who are more price sensitive than adults," said Cunningham. "We
would be seeing smoking rates go down much faster if we could get contraband
under control."

Neil Collishaw, of Physicians for a Smoke-Free Canada, said the fact is
"progress against the tobacco epidemic is stalled."

Smokers blame high taxes on a carton of cigarettes for the popularity of
contraband products, but tobacco taxes in Ontario and Quebec remain low.

"Ontario and Quebec have the lowest tobacco taxes in Canada, but the highest
rates of contraband. So contraband is not caused by taxes, it is caused by the
proximity to the sources of supply," said the cancer society's Cunningham.

The major source of that supply is the Akwesasne native reserve that straddles
Ontario, Quebec and the State of New York. Ten cigarette manufacturing plants on
the U.S. side pump out billions of cigarettes annually.

"We know that perhaps 95 per cent of the contraband in Canada originates in
illegal operations located on four First Nations reserves, the most important of
which by far is the U.S. side of Akwesasne near Cornwall, Ont. There is also
Kahnawake near Montreal, Tyendinaga near Belleville, and Six Nations near
Brantford," said Cunningham.

Because of the international border issues and sensitivities surrounding First
Nations, the Ontario government concedes that fighting contraband tobacco is
"huge" and "complex."

"It doesn't only involve police services in Canada and the United States.
Obviously, the ministry of revenue is involved, the ministry of aboriginal
affairs ... (various) departments in the States," said Bartolucci.

Federal Public Safety Minister Peter Van Loan, whose government has been
criticized for inaction, insists Ottawa is taking the matter seriously.
"Obviously, contraband tobacco is a major concern," said Van Loan, noting it is
worrying for reasons beyond just public health.

"This is related to organized crime in a significant way," he said, touting the
Conservative government's anti-contraband strategy, which includes beefed-up
policing.

"It's interesting to note that this year I think seizures are up dramatically,
both in dollar terms and in quantities, so that plan is working," said Van Loan.

Ontario's Bartolucci echoed that sentiment, saying Queen's Park is working
closely with Ottawa and Quebec on a coordinated effort.

"Convictions under the Tobacco Act have tripled, seizures, year over year, have
increased by 47 per cent, so we are making some really good strides," he said.

However, health advocates warn the historic decline in the number of smokers is
starting to slow due to the availability of cheap cigarettes. Last year, about
18 per cent of Canadians aged 15 years and older were smokers. The previous
three years it was 19 per cent.

"In 1999, it was 25 per cent. But in more recent years the decline has slowed.
Federal tobacco taxes have not increased since 2002 and the main reason is
contraband concern," said Cunningham.

The RCMP, assisted by the Ontario Provincial Police, is trying to stamp out the
illegal cigarette trade. But the Mounties complain that while they are doing
their best to round up the smugglers, the courts go far too easy on them.

RCMP Sgt. Michael Harvey said fines of $50,000 to $100,000 are assessed, but the
courts allow them to pay $10 to $50 a month. And, even then, the scofflaws don't
bother.

The Canadian Coalition for Action on Tobacco has recommended ways Ottawa can
tackle the problem:

a.. Work with the U.S. to shut down the illegal, unlicensed factories on the
American side of Akwesasne.
b.. Prohibit the supply of raw materials including raw leaf tobacco, cigarette
packaging, filters and rolling paper, to anyone without a valid tobacco
manufacturer's licence.
c.. Promote with First Nations the benefits of having a native tobacco tax
equal to the provincial one.
d.. Increase penalties substantially to deter would-be smugglers and
manufacturers.


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