By LEE HARDING (AIMS Author)
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 included 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 appropriate legal term), nor 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. The final product has been jointly published by two think tanks: the Atlantic Institute for Market Studies (AIMS) and the Frontier Centre for Public Policy.
Information was inadequate for even a guess at corporate tax exemptions. They would be likewise painstaking to attempt for property taxes. But from there, things got better. Sales tax data were patchy, but good enough for ball park 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, $251 million; fuel, $97 million. Tobacco 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 worth of provincial tobacco tax exemptions, despite having only 765 Registered Indians in the 2011 census. This is a $1,500 benefit for every Registered Indian 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 clear that many are buying cigarettes on behalf of non-status people. Unfortunately, many of them will end up burdening the healthcare system with higher costs. It seems unjust 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 all the benefits they receive as Canadians? To boot, a tax exemption was never given in the treaties, only the archaic Indian Act.
This same legislation that holds First Nations back, by preventing them from owning reserve lands as private property, is the same one that 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.
Unfortunately, governments do not seem to pay attention to these exemptions, let alone have any interest in changing them. This is a shame, for First Nations tax exemptions are an unjustified public policy.
Lee Harding holds a master’s degree in public policy from the University of Calgary and is author of “The Value of First Nations Tax Exemptions.”