From Tobacco Info No. 2 - September 2010
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Drop in contraband in Canada
Many smokers have returned to the taxed cigarette market
By Pierre Croteau
Health Canada data confirms the trend: in 2009, in Canada, there was a 3.9% increase in the number of cigarettes sold after having been taxed in accordance with fiscal laws. This was the first time that the volume of cigarettes legally sold in Canada has increased since 1996.
Murray Kaiserman, director of research, surveillance and evaluation for Health Canada’s Tobacco Control Programme, believes the increase in legal sales is due to a drop in contraband sales in 2009. According to Health Canada, there is no evidence to suggest the sudden increase in legal sales was driven by more Canadians taking up smoking or by Canadian smokers consuming more cigarettes per day, as smoking behaviours have not changed in a statistically significant way. In fact, the Canadian Community Health Survey, released in June by Statistics Canada, shows the number of smokers among Canadians aged 12 and over has dropped from 6.01 million in 2008 to 5.73 million in 2009. The drop is said to be statistically significant.
The raw data and the explanation provided by Health Canada are the latest available indications of the recent trend in the tobacco market.
In December 2009, when their respective governments updated their budgets, both the finance ministers of Nova Scotia and New Brunswick revised expected revenue from the tax on tobacco products upwards for the year 2009-2010.
In an update of Quebec’s financial framework that was released in conjunction with the 2010-2011 budget, the Quebec Minister of Finance asserted that “revenue from the specific tax on tobacco products is revised upwards by $65 million due to the increase in the number of cigarettes sold legally. Better control at the border and deployment of a new Sûreté du Québec team in the Valleyfield region impeded smugglers’ tobacco supply. The reduced supply of illegal products led to an increase in legal sales of tobacco products.”
Quebec and Ontario were identified by the Canadian Convenience Stores Association (CCSA) as the most affected by the black market, and in Quebec, there were more outlets for tobacco products in the registry of the provincial Ministry of Revenue in May 2010 than there were when point of purchase displayed two years earlier.
In its 2009 annual report, British American Tobacco, the multinational that owns Imperial Tobacco Canada, the largest supplier in the Canadian market, noted that, “profit in Canada increased, benefiting from a strong currency and some reduction in illicit trade.” In its 2010 half-year report, the company further acknowledges that “volume growth was achieved on the back of a significant reduction in illicit product as a result of the authorities' enforcement activities.”
In its Annual Report, cigarette manufacturer Philip Morris International, owner of Rothmans, Benson and Hedges, states, “In Canada, the total tax-paid cigarette market was up by 3.4% in 2009, primarily reflecting stronger government enforcement measures to reduce contraband sales.”
In its financial report for the first two quarters of 2010, PMI again showed increases in its sales volume and again attributed this to “stronger government enforcement measures to reduce contraband sales.” For the second quarter, PMI also reports an 18.7% increase in its shipment volume and a slight market share decline.
Obsolete data of the CCSA
In the past, the firm GfK Research Dynamics tried to measure the scope of the black market in the country as information to be used by the Canadian Tobacco Manufacturers’ Council (CTMC). Results for 2006, 2007 and 2008 were published and amply circulated by the CCSA.
Since September 2008, however, neither the CTMC, nor the CCSA, nor anyone else has published an update of these estimates.
In spite of this, during a press conference tour in various large Canadian cities in mid-May, it was the GfK study, made public in September 2008, which served again as a reference for CCSA spokespersons claiming that contraband would furnish Ontario smokers with close to 50% of their cigarettes, and Quebec smokers with about 40% of theirs. These figures have frequently been echoed by the media.
The CCSA on tour (again)
For several years, the number two man of the CCSA, Michel Gadbois, a former public relations officer for the cigarette industry, has made the most of his active contribution to the 1994 tax reduction with small merchants, and regularly denounces “excessive taxes” on tobacco in his press releases. During his press conferences, the vice president of the CCSA is accompanied by small local merchants who do not hide their hope for a reduction in taxes.
On the other hand, before the Standing Committee on the Public and National Security of the House of Commons on April 27 in Ottawa, the president of the CCSA, Dave Bryans, another former executive of the cigarette industry from Ontario, asserted that, for the moment, the CCSA was not demanding tax reductions to reduce the level of the black market.
In the latest list of demands that the CCSA has presented to members of parliament and legislatures as of May 10, there is no mention of a tax reduction. The CCSA would rather, among other “actions,” conduct meetings in the schools to speak about contraband.
The Non-Smokers’ Rights Association (NSRA) and the Quebec Coalition for Tobacco Control (QCTC) publicly question the sources of financing for the endless tours and pro-tobacco activities of the CCSA, particularly in the context of the CCSA’s claim that thousands of its members are disappearing due to the illicit business in tobacco.
For years, the NSRA, the QCTC, Physicians for a Smoke-Free Canada and the Canadian Cancer Society have demanded that public authorities take action to settle the problem of contraband cigarettes at its source.
Taxation and dissuasion from smoking
In April, Saskatchewan, Manitoba and Newfoundland increased their taxes on cigarettes. Ontario, British Columbia and Nova Scotia on July 1 implemented a provincial portion of Harmonized Sales Tax (HST) on tobacco products meaning that smokers are required to pay substantially more to purchase their cigarettes, even though taxes specific to tobacco products did not increase.
On the other hand, the federal government has not increased the weight of its taxes on the price of tobacco products since 2002, nor has Quebec done so since December 2003.
With fewer contraband products offered in 2010, the taxes could have a renewed dissuasive effect on smokers and more governments would be able to reconsider an increase in the tax incentive to give up tobacco, an incentive the World Health Organization firmly recommends governments use.
The online data from The Tobacco Atlas shows that there are more than 30 countries where taxation as a proportion of cigarette price is greater than the Canadian average, among which are Mexico, Uruguay, Portugal, Ireland, United Kingdom, France, the Netherlands, Denmark, Germany, Italy, Poland, Pakistan and Thailand.