First Nations populations and on-reserve commerce are growing faster than the Canadian average. This growth should be welcomed by the rest of the Canadian family, save for one problem: unjustified tax exemptions for on-reserve commerce and individuals.
Loopholes in the Indian Act mean that government does not tax any product or service delivered on a reserve to a “Registered Indian” ( this is the official, albeit outdated, legal term, although the term “Status Indian” is also sometimes used) or any income earned on reserve by a person or business.
Trends suggest that the scale of tax losses for governments, and the effects of an uneven playing field with off-reserve businesses, will only increase.
Provincial and federal governments have not closely examined the fiscal impacts of such policies. For a new study, entitled “The Value of First Nations Tax Exemptions,” I made information requests of federal and provinces governments and examined census data.
Information was inadequate for even a guess at corporate tax exemptions. It proved just as difficult to attempt an estimate for property taxes. But from there, things got better. Sales tax data were patchy, but good enough for ballpark estimates. Statistical analysis of the census provided personal income tax data. And with the lone exception of Nova Scotia, provinces provided tobacco and fuel tax, from which their federal counterparts could be derived.
The results? In 2014–15, tax exemptions on PST, HST and GST were worth roughly $237 million; personal income tax exemptions were $251 million; and fuel tax exemptions were $97 million. Tobacco tax exemptions were worth an incredible $686 million.
The total was nearly $ 1.3 billion, which represents an average benefit of $ 2,000 for each of Canada’s 637,660 Registered Indians. Although this does not represent a significant amount of the federal budget, it isn’t peanuts. In particular, the tobacco exemptions are so substantial that governments ought to pay closer attention.
Prince Edward Island, for example, had $ 1.1 million in provincial tobacco tax exemptions, despite having only 765 Registered Indians in the 2011 census. This is a $ 1,500 benefit for every registered individual, and roughly twice as much if federal taxes are included.
New Brunswick isn’t far behind at almost $ 1,200 per beneficiary. Such exemptions represent 8.1 per cent of tobacco tax revenues, an amount five times the percentage of Registered Indians in the province.
Saskatchewan is one of few provinces to address the issue. To mitigate tax leakage, it limited each Registered Indian to one tax- free carton of cigarettes per week, down from the former limit of three. This rankled First Nations, even though the 200- smoke limit was still plenty.
Urban reserves have proliferated in Saskatchewan and despite the policy change, tobacco exemptions on reserves have climbed to 23 per cent of the province’s entire tobacco tax revenues.
Yes, Aboriginals smoke more ( and why wouldn’t they, when the price of tobacco is half as much?) but it is evident that many are buying cigarettes on behalf of non- status people. Unfortunately, many of them will end up burdening the health- care system with higher costs. It seems unreasonable that they would not pay tobacco taxes along the way to offset this expense.
Furthermore, why should First Nations on reserve be exempt from paying their share of taxes, given that, as Canadians, they also receive benefits? A tax exemption was never accounted for in the treaties, only in the archaic Indian Act.
This same legislation that holds First Nations back, by preventing them from owning reserve lands as private property, provides them an unfair tax exemption. The federal government would do well to amend or rescind the act and put First Nations on even ground with others.