Contraband

Is our government blindfolded to lost tobacco tax revenue?

It appears that many governments in modern world economies are faced with lost tobacco tax revenue from the sale of untaxed or contraband tobacco.

In Canada, tobacco taxes lost each year are estimated to be $2 billion plus.

Recent changes to the federal Criminal Code provide much larger fines and possible jail sentences to those caught smuggling or distributing untaxed tobacco. This is a step in the right direction. But how big is the step and who will it fundamentally impact? The fines and penalties kick in with 50 cartons or more – 50 cartons is a case of tobacco. A case of tobacco can easily be hidden in a trunk of a car.

So what profit exists with a case of tobacco. Assuming current selling prices of legal product versus prices of products commonly sold on native reserves, the gap is about $50 a carton or $2,500 a case. So somewhere from $1 to $2,500 is the profit motive for selling one case of tobacco a week. Given that the average smoker is smoking approximately a carton a week – you need 50 customers a week to sell to.

For tobacco users who commonly purchase tobacco and gas each week on reserve lands, there appears to be a good profit incentive with low risk associated with moving “selling” one case per week. Even if you sold one case a month – 12 cartons a week – the profit potential of up to $2,500 in cash is very attractive to those who consider purchasing contraband tobacco a victimless crime. Research has indicated that most contraband tobacco users believe this – thinking they are not hurting anyone other than depriving governments of unfair taxation.

Is the new federal penalties good for society – absolutely yes! Do they go far enough to stop the illegal distribution – only time will tell…

I am often reminded where there is smoke there is fire — where there is large profits without consequences – there will be continued sales …