OTTAWA – Governments facing budget shortfalls are missing out on billions in tax revenue as nearly half of all cigarettes sold in Canada are now from illegal sources, according to a recent report by the accounting firm EY Canada.
Set to be released on Monday, the report reveals that Ottawa, British Columbia, and Ontario have already seen tax losses between $1.7 billion and $2.75 billion due to illegal cigarette sales over the past three years, a time when the contraband tobacco market has been expanding rapidly.
Commissioned by the Convenience Industry Council of Canada (CICC), this EY study indicates that the burgeoning illegal cigarette trade is nearing the size of the legal market. In Ontario, contraband cigarettes now represent 42 to 53 percent of sales, up from an estimated 34-46 percent just three years ago.
In B. C., projections show that the illegal market has increased from 21-36 percent in 2023 to between 33 and 46 percent by 2025.
These illicit sales, largely managed by organized crime, are depriving convenience stores and other retailers of vital income, as well as impacting government revenue.
“It’s a major underground economy operating in plain sight,” said Anne Kothawala, president of CICC.
The primary reason smokers choose illegal cigarettes is straightforward: cost. A carton of 200 legal cigarettes generally costs around $160 in Ontario and $190 in B. C., with taxes making up more than 60 percent of that price. In contrast, an illegal carton can be found for under $50.
The RCMP has pinpointed southeastern Ontario and southwestern Quebec-especially First Nations reserves near the Canada-U. S. border-as key areas for manufacturing these illegal cigarettes. Some products are also smuggled into Canada from various locations and distributed across the country via truck or even through mail alongside other illicit items like guns and drugs.
Meanwhile, Canadian governments battling significant financial pressures are losing out on crucial tax income.
Ontario announced Thursday that it expects a deficit of $16.9 billion for this fiscal year-one of its highest ever recorded. B. C.’s deficit is projected to hit $13.8 billion this year, marking a record high for the province. This deficit was a major issue during this month’s provincial election which resulted in incumbent NDP Premier David Eby being ousted from office.
According to EY’s findings, Ontario and B. C.-the focus regions for this study-have lost about $1.1 billion and $400 million respectively over three years due to illicit tobacco sales.
The Carney government plans to present its second budget on Thursday while expecting yet another large deficit ahead. The Parliamentary Budget Officer predicts a budget shortfall of $63.3 billion for this fiscal year-one of history’s largest deficits. Over this same three-year span, Ottawa lost between $788 million and $1.3 billion because of black market tobacco sales as per EY’s analysis.
The report also noted that legal cigarette sales have dropped by 46 percent in Ontario since 2019 and by 59 percent in B. C., driven by both black market growth and an increase in smokers quitting or opting for alternatives like vapes or legal cannabis products.
The convenience store council is urging governments to take action against these illegal operations by:
- tasking the new Financial Crimes Agency with targeting profits from illegal tobacco
- boosting resources for the RCMP’s Contraband Tobacco Task Force
- requiring banks, search engines, and social media platforms to block illegal sellers
- allowing adults access to buy legal nicotine pouches at authorized retailers
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