Sometimes when you’re doing research you come across numbers that are just so staggering and they simply cannot be ignored.

That is what happened when the CTF started to analyze a Nova Scotia finance department report called “Overview of Taxation.” The report shows a staggering increase of 83% in tax loss due to exempt tobacco sales and an increase of 8% the total number of cigarettes sold on reserve from 2001 to 2010 (see page 79).

As a result the CTF dug further into the numbers.

Given that almost all tax-exempt tobacco is sold on Nova Scotia’s native reserves, the CTF made a freedom of information request (FOIPOP) to better understand why so much tobacco is being sold on Nova Scotia’s native reserves, and why it’s increasing.

The FOIPOP shows that tobacco wholesalers sold the equivalent of about 130 million tax-free cigarettes to reserves in the 2010-2011 fiscal year. This number becomes even more staggering when you consider there are only approximately 14,330 status Indians in Nova Scotia who are eligible to purchase tax free smokes. (See reference HERE Section 13.3)

Link to CTF Freedom of Information request: HERE

Link to updated FOIPOP response with 2010-11 numbers: HERE

Here are some breakdowns of tobacco of tax-free tobacco sales:

Total number of tax-exempt cigarettes sold on Native Reserve in 2010-11: 95,970,258

Amount of tax-exempt uncut tobacco sold on Native Reserves in 2010-11: 32,293,387 grams or the equivalent of 34,876,858 cigarette sticks.

 (Note: there are approx. 0.8 grams of tobacco in one cigarette, reference HERE)

Total amount of tax-free tobacco sold to Native reserves: 130,847,116 equivalent cigarette sticks.

Total number of status Indians in Nova Scotia: 14,330 (Reference: HERE) 

Number of status Indians over the age of 14: 10,819

 (Note: number of status Indians by age is the percentage for Atlantic Canada, assuming Nova Scotia percentage is the same, you can find the link HERE)

Per-capita annual consumption of cigarette sticks for every man, woman and youth over the age of 14 per year (2010-11): 8,870 total cigarettes

Per-capita annual consumption of uncut tobacco for every man, woman and youth over the age of 14 per year (2010-11): 2,984.9 grams or the equivalent of 3,228.7 cigarettes.

Total per-capita annual consumption of tobacco (combined uncut tobacco and cigarettes) for every man, woman and youth over the age of 14 per year (2010-11): 12,098 cigarettes (equivalent)

Total per-capita consumption of tobacco for every man, woman and youth over the age of 14 per day (2010-11): 33 cigarettes (equivalent) in other words about  a pack and a half.

A study from The First Nations Information Governance Centre, published in June 2011, shows that in Canada 56.9% of adult aboriginals classify themselves as daily or occasional smokers, while 33.2% of youth (ages 12-17) say they smoke either daily or occasionally. (Reference: HERE page 80 & 38)

Assuming that the same percentages hold true in Nova Scotia, we can estimate the consumption of youth and adult aboriginal smokers if all cigarettes in issue are consumed by people on reserve.

Total number of status Indian smokers over the age of 10: 6,211

Total yearly (2010-11) consumption for each status Indian smoker: 21,067 cigarette sticks equivalent, or 57 cigarettes per day

Value of tax-exempt tobacco relative to tax collected:

2001: Total Tax Collected: $75,577,000 Value of exempt tobacco: $4,477,340 = 5.6%

2006: Total Tax Collected: $163,617,000 Value of exempt tobacco: $17,554,124 = 9.7%

2011: Total Tax Collected: $211,856,000 Value of exempt tobacco: $27,111,477 = 11.3%

(Reference: Total tax collected on tobacco are from Nova Scotia Public Accounts)

Note: Status Indians make up 1.5% of the Nova Scotia population. But account for 11.3% of the total tobacco sales in 2010-11.

Technical Note:

The amount of tobacco product is regulated by a formula set out in an agreement between the provincial government and native bands across the province. This agreement sets a quota each and every year for how much tax-free tobacco can be sold. One of the components in the formula is population.

The numbers for tax-exempt tobacco are from wholesalers’ shipments to reserves. The government knows how much tobacco is going to the reserves because wholesalers remit the information with their taxes.

Need for an Investigation

 There are two reasons why the Nova Scotia government should proceed with an investigation into tax-free tobacco sales.

One interpretation is that the numbers point to a potential health crisis among status Indians in Nova Scotia. If a significant portion of the tax exempt tobacco is actually being consumed by status Indians, their intake is extremely high and it could lead to serious health problems.  

Second, given the numbers, its frankly almost impossible to believe that on a per-capita basis every man, woman and youth can consume 33 cigarettes a day or to think about it a different way, that every single Indian home is consuming 3 packs a day.

Given these numbers there’s potentially a significant portion of the tax-free tobacco bound for status Indians is actually being sold on the black market to non-Indians. The RCMP, in a 2008 study of contraband cigarettes, found that the Maritimes is the second largest consumer of contraband cigarettes in Canada. (Reference: HERE)

Why is this important?

The numbers suggest that the system designed to respect the rights of status Indians to obtain tax-exempt tobacco could be being abused. The lost revenue is then made up from other sources – ultimately, taxpayers! The province is running a huge deficit of over $300 million -- each and every dollar counts.  This is an area that warrants investigation and reform, and the payoff could be huge.