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SOMBA K'E/YELLOWKNIFE
A cash-strapped territorial government could make an extra $6 million in tobacco tax go a long way, said Range Lake MLA Daryl Dolynny at a press conference Tuesday morning.

Range Lake MLA Daryl Dolynny sits beside acting communications advisor Jessica Fournier as he speaks to media about what he considers a costly loophole in the GNWT's tobacco tax collection system. - Galit Rodan/NNSL photo

"Could you imagine what we could be doing in terms of prevention and health outcomes and other programs," Dolynny asked.

Dolynny was not speaking about raising taxes but rather closing a loophole in the tobacco tax collection system he believes has led the GNWT to a yearly shortfall of at least $6 million.

The member for Range Lake first raised the issue publicly during his member's statement in the legislative assembly Feb. 17.

Dolynny advocated for a single-source distribution system for all tobacco coming into the NWT. This will "provide a proper flow of tax memos to the GNWT from the tobacco manufacturers, thereby returning full control of tax collection monies to the GNWT," he said.

He convened a press conference Tuesday morning to explain the reasoning behind his assertions. After looking at statistics, he said, reporters would "come to the same conclusion I have, that, yes indeed, Houston, we have a problem."

According to figures from Statistics Canada, Health Canada and the NWT Bureau of Statistics, in 2010 there were 14,703 self-reported smokers ages 12 and over in the Northwest Territories. The average number of cigarettes smoked per day nationally was 15.3 and there was no such data available specifically for the NWT.

Based on those numbers, 410,544 cartons of cigarettes would be consumed annually in the NWT. At a tax rate of $57.20 per carton, the GNWT would be collecting $23,483,116 in tobacco tax revenues yearly, however, as Dolynny pointed out, the government currently collects revenues based on about 305,000 cartons annually, representing $17,500,000 in annual tobacco tax revenues. The $6 million shortfall of the actual tobacco tax revenue as opposed to the statistically projected tax revenue "proves that manual self-reporting is outdated and unreliable, by not providing the proper flow of tax memos which reflect the actual amount of tax being collected," Dolynny said.

The Northwest Territories relies on Alberta for its supply of cigarettes. Tobacco is sent from manufacturers to multiple types of wholesalers and distribution networks, which generates Alberta tax memos that the GNWT must reconcile, said Dolynny. "And this is where a lot of those systems of accountability in terms of manual reporting come into play," he said.

Dolynny gave a hypothetical example of a company that owns multiple retail sites throughout the North. The company buys 10 cartons from the manufacturer for distribution but, in the process of manual reporting, claims it has only shipped five cartons to its stores. An Alberta tax memo would be created for five cartons and, theoretically, a tax audit would not show any inconsistencies, yet the GNWT would be short tax revenue for five cartons of cigarettes.

Dolynny said the government could be losing even more than $6 million dollars per year if the average number of cigarettes smoked per person in the NWT each day is actually higher than the national average of 15.3. Based on a "more realistic" average of 18.3 cigarettes per person per day in the NWT, the government could or should potentially be collecting $27 million in tobacco tax revenues, said Dolynny – nearly $10 million more than it is currently collecting.

Finance Minister Michael Miltenberger, whom Dolynny notified months ago, said the government's internal audit bureau spent over 600 hours studying tax memos to ensure that tobacco taxes were properly reported and collected. According to Miltenberger, the bureau found, "That there was a reasonable assurance that the GNWT was collecting the required tobacco tax revenue; there was no evidence to support assertions that collectors were under-reporting their sales volume to the GNWT; there was no evidence that the Northwest Company was incorrectly reporting sales to the NWT to avoid paying the higher tax rate; and some small retailers were circumventing the NWT tobacco tax collection process by making purchases from an unlicensed wholesaler in Alberta."

Dolynny suggests, however, that despite "stellar work" done by the bureau, the department lacked the manpower required for a full audit, which Dolynny believes would confirm his suspicions.

"This is many years of business, many years of looking at balance sheets," he said. "If there's one thing I think I am good at as a person of business is finding problems in balance sheets. I've done that for most of my adult life. This is no different. This is just a bigger balance sheet. A very complex balance sheet."

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