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Feds should revamp First Nations tax exemptions

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By: Graham Lane
Published on July 20, 2017 by the Winnipeg Sun

First Nations and Indigenous issues draw $20 billion a year from our federal and provincial governments. It’s likely increases will be coming. On the tax side of the ledger, tax breaks afforded to First Nations annually exceed $1 billion.

Federal and provincial governments do not collect taxes on products and services delivered to reserves (and sub-offices of reserve offices) for Registered Indians. If, for example, a First Nations person lives in Winnipeg and buys a car and has it delivered to a reserve, no federal or provincial taxes are paid. Surprisingly, governments have not examined the fiscal impacts of this policy. In fact, governments make it very difficult to get data on this issue.

In a recently published Frontier Centre report (“The Value of Tax Exemptions on First Nations Reserves”), researcher Lee Harding estimates that First Nations tax exemptions are worth about $1.3 billion per year. Harding notes that in 2014-15 tax exemptions for First Nations for PST, HST and GST were worth roughly $237 million. Add to that waived personal income tax of $251 million, fuel tax breaks of $97 million, and tobacco tax exemptions worth an incredible $686 million.

The $1.3 billion in annual lost tax revenue to government represents an average benefit of about $2,000 for each of Canada’s 637,660 Registered Indians. These tax exemptions, which are not available to other Canadians, were not included in any of the 600 plus treaties but are provided through the Indian Act. The Act should be revised, as it is some provincial governments are already trying to clamp down on the tax breaks.

Prince Edward Island reported $1.1-million worth of provincial tobacco tax exemptions, despite having only 765 Registered Indians — a $1,500 benefit for every First Nation person. New Brunswick reported First Nation persons being exempt from $1,200 of provincial tobacco taxes each, the total representing 8% of the province’s tobacco tax revenues.

Provinces with large aboriginal populations (Manitoba and Saskatchewan, specifically) are trying to close the tobacco tax loophole. Saskatchewan limits each Registered Indian to one tax-free carton of cigarettes per week, down from what was three cartons per week. While the limitation rankles many First Nations people, tobacco exemptions have climbed to 23% of the province’s entire tobacco tax revenues.

The ongoing exemption of tobacco taxes has perverse outcomes. Aboriginals smoke more than other Canadians, perhaps because it costs them about half as much. And, Aboriginals are buying tobacco products for non-aboriginals — a thriving black market in tobacco exists on many reserves.

Smoking is not healthy, many tax-free smokers end up burdening the health-care system. To help pay for health-care, perhaps all smokers — not just non-aboriginal smokers — should pay tobacco taxes.

A question of principle needs to be asked. Why should First Nations people be exempt from paying taxes when they benefit hugely from Canada’s expensive and increasingly comprehensive social system? The Indian Act — not the treaties — gives First Nations massive tax exemptions.

As the unfairness of this become understood by more Canadians, federal and provincial governments will likely face increasing pressure to reduce if not eliminate the tax breaks. So far, the federal government has shown no interest in changing, let alone removing, First Nations tax advantages. It should, and soon.

— Graham Lane chairs Manitoba Forward

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