Illegal cigarette seizures are up in N.S. while tobacco tax revenues drop

Nova Scotia tobacco enforcement officers seized a record number of illegal cigarettes last year and laid dozens of charges, an effort that comes as provincial tobacco tax revenues have dropped significantly in the last number of years.

The seizures are being credited to stepped-up investigations by Service Nova Scotia officers working with the RCMP, but Jill Balser, the minister in charge of the department, acknowledges contraband may be eating into the province's bottom line.

"Yes, we are seeing tax revenues impacted by folks that are accessing contraband products," Balser said.

Last year, officers working for Service Nova Scotia's audit and enforcement division seized 6.1 million cigarettes, a 38 per cent jump from the year prior and well over double the number in 2022. The figures from the department do not account for tobacco seized by police. 

At the same time, tobacco tax revenues have been sliding. From 2011 to 2021, revenues were fairly stable, but since then have dropped by more than a third, a $76-million decline, according to provincial financial statements.

Anti-smoking advocate Cynthia Callard, the longtime executive director of Physicians for a Smoke-Free Canada, has closely watched tobacco tax revenues, cigarette sales and smoking-rate statistics across the country.

The declining tax revenues in Nova Scotia mirror what's happening in many other provinces. In Newfoundland and Labrador, for instance, tobacco tax revenues dropped 48 per cent over a three-year period, according to figures Callard gathered.

Smoking rates have declined, she notes, but that's not all. Even a decade ago, she said, many young people who smoked were still lighting up cigarettes. These days, they are vaping. Older cigarette smokers continue to die, their ranks unfilled by younger generations.

The price difference between legal and illegal cigarettes is large because contraband avoids steep federal and provincial taxes. In one recent court case, a judge noted cigarettes being sold at a Cole Harbour, N.S., smoke shop going for $60 a carton, compared to upwards of $150 on the legal market.

Callard said she doesn't dispute there's a contraband tobacco problem. She also doesn't quarrel with numbers in a report sponsored by a convenience store association that found contraband likely accounted for 38 per cent of the market in Nova Scotia, and even more in some other provinces.

But she maintains the issue has long been "weaponized" by those who argue against measures aimed at deterring smoking such as higher taxes, packaging restrictions and health warnings.

There is, however, a new incentive to crack down, she said, pointing to the recently approved court settlement that will see three tobacco companies pay more than $24 billion to provinces and territories seeking to recoup smoking-related health-care costs.

Some of the money will be paid upfront, but the bulk of it will come over many years. The deal is structured so that 85 per cent of the companies' after-tax profits in Canada will go to the provinces and territories over five years, a percentage that will then decline in subsequent five-year chunks until the full amount is paid.

In short, only through a "functioning" legal market will money flow to provincial coffers, Callard said.

"Provincial governments really have every reason to smarten up and to pay more attention to contraband, starting now," she said.

While enforcement efforts may have risen in Nova Scotia, one investigation came under scrutiny earlier this year. The case involved a Millbrook First Nation band councillor, Chris Googoo.

The judge in the case called it an "odd investigation" because officers didn't take the extra steps needed to prove Googoo actually owned and controlled the smoke shop that was raided. She acquitted Googoo of the illegal tobacco charges.

Tobacco companies have long sounded the alarm about contraband cigarettes. However, they've also been implicated. 

From the late 1980s to the mid-1990s, a number of manufacturers were accused of shipping cigarettes to the U.S. that were then smuggled back into Canada in order to avoid excise taxes. At the same time, they pointed to contraband problems to convince governments to lower taxes.

Danny Fournier, the senior manager of illicit trade prevention at tobacco manufacturer Rothmans, Benson and Hedges, said in an interview he understands Canadians might distrust the assertions of tobacco companies that illegal cigarettes is a serious issue.

But he said he saw the problem from the police side of things in his previous role heading contraband tobacco enforcement operations for the Sûreté du Québec, that province's provincial police force.

There's no doubt the contraband trade is controlled by organized crime that cares about money and little else, he said, and people need to look no further than frequent major police busts.

"Yes, we're a tobacco company," he said. "I don't see we'd make more sales, more product, given the market — the market is a declining market. But bringing back that money from the underground economy back into the legitimate economy, everyone will benefit from that."

He pointed to Quebec, which he said has been effective in combating the problem, suggesting the province has found "that sweet spot or that balance, if you will, between awareness, enforcement and taxation."

Quebec's tobacco taxes are lower than other provinces, but it has also been lauded for its enforcement efforts. At the same time, it's seen smaller declines than other jurisdictions in its tobacco tax revenues over the last four years.