Imperial Tobacco Canada says tobacco smuggling now results in billions of dollars in lost tax revenue every year for Canada, marking the highest estimate to date of the cost of illegal cigarettes.
Smuggled cigarettes account for nearly 40 percent of the tobacco market in some provinces, according to the company’s submission to the Senate National Finance Committee.
“Illegal tobacco is costing the federal and provincial governments $2.5 billion in lost tobacco tax revenue annually,” Imperial wrote to the committee, as first covered by Blacklock’s Reporter.
“Meanwhile organized crime groups behind Canada’s illegal tobacco trade continue to use it as a cash cow to fund other criminal activities including drug and weapons trafficking.”
Imperial Tobacco commissioned Abacus Data to conduct research in three provinces to better understand the scope of the illicit market: British Columbia, Alberta, and Ontario.
The findings revealed that the illegal tobacco rate stands at 36 percent in Alberta, 34 percent in British Columbia, and 33 percent in Ontario. For Alberta and British Columbia, these figures represent the highest rates observed to date.
Imperial Tobacco stresses the severity of Canada’s illegal tobacco issue, estimating that black-market product comprises about one-third of the national market, with the proportion increasing in recent years.
The Canada Revenue Agency collects $1.8 billion a year from tobacco taxes. In addition, Imperial Tobacco’s estimate of a $2.5 billion annual loss dwarfs the $400 million loss previously calculated by the Cabinet, which was disclosed in the Commons following a 2023 Inquiry of Ministry by Conservative MP Philip Lawrence.
The report notes that approximately 3.8 million Canadians, or 11 percent of the adult population, are either casual or daily smokers, a figure that has remained relatively stable since 2013.
The report highlights a decline in legal tobacco sales and a simultaneous rise in the contraband tobacco market in these three provinces since 2019. It points out that illegal cigarettes, sold tax and duty-free without adhering to Health Canada regulations or undergoing inspections, retail at a fraction of the price of legal tobacco.
The report also notes that selling illegal cigarettes is more profitable than dealing in illicit drugs, and the penalties for trafficking cigarettes are significantly less severe. It is estimated that British Columbia alone lost between $215 million and $591 million in tobacco tax revenue due to illegal sales between 2019 and 2022.
