Tobacco taxes encourage cigarette black market: report

High tobacco taxes intended to cut the smoking rate in Canada help create a black market where organized crime profits from the increased demand for contraband cigarettes, according to a new report from a Canadian public policy think-tank.

“Smuggling and trafficking of contraband cigarettes is an unintended consequence of federal and provincial tobacco tax policies,” said Diane Katz of the Vancouver-based Fraser Institute in a statement.

The study, Contraband Tobacco in Canada, documents various federal and provincial tobacco tax policies and anti-smoking initiatives that have been implemented in Canada since the 1980s, and describes how governments have attempted to counteract the black market.

The research showed that the illicit trade of cigarettes increased whenever tobacco taxes were raised, and that anti-smoking campaigns are just as effective at cutting smoking rates.

“If smokers are evading taxes by purchasing black market cigarettes, increasing taxes to discourage smoking is essentially ineffective,” said Ms. Katz.

The report found that law enforcement agencies are hampered by long-standing territorial disputes between the federal and provincial governments and Indian bands, describing the aboriginal territories in south-central Ontario and Quebec as “ground zero” of the contraband trade.

Criminal gangs, such as the Hell’s Angels, were also identified as a group profiting from the black market.

Taxes on tobacco have increased several times over the last 25 years, including last week in Ontario and B.C. where the price of cigarettes rose with the introduction of the harmonized sales tax on July 1.