Madawaska First Nation implements own tax law in response to N.B. cancelling agreements

Madawaska First Nation has gone ahead and cut out the New Brunswick government from taxes collected on tobacco and cannabis sold on-reserve.

In response to the province cancelling a series of tax revenue-sharing agreements it held with Wolastoqey First Nations, Madawaska has enacted its own cannabis and tobacco licensing act, allowing the band government to set a tax rate for those products and collect the revenues, says Chief Patricia Bernard.

"It's really going to be unfortunate, because the whole purpose of these tax agreements was to create a fair playing field of sales taxes on- and off-reserve," Bernard said.

"Now you're going to be able to buy these goods cheaper on reserve, and it's going to likely cause some stir … amongst the chambers of commerce locally."

Bernard said the taxes that are now applied on tobacco and cannabis sold in Madawaska First Nation are as much as half the rate for similar products sold at neighbouring retailers off-reserve, giving the First Nation a competitive advantage.

She said the new law for cannabis and tobacco is just the first step, with plans to introduce a similar law that would see the band government collect taxes on fuel and alcohol sold on-reserve.

"If someone decides to challenge us, we're prepared to defend ourselves based on our business licensing law."

The move is in response to the recent end to an agreement that saw the province share $1.8 million with Madawaska for taxes paid on tobacco in 2020-2021.

In April 2021, the New Brunswick government announced it would not renew agreements with 13 Wolastoqey and Mi'kmaq communities that saw retail taxes for fuel and tobacco shared between those communities and the province.

In place since 1994, the agreements helped generate millions in revenue for those communities, particularly Madawaska First Nation, which took in $124 million in shared fuel, tobacco and harmonized sales taxes between 2003 and 2021.

Premier Blaine Higgs justified scrapping those agreements by saying they were unfair, leading to some communities prospering more than others, and has proposed a model where they'd instead receive provincial funding for housing, health care, social assistance and education — subject to terms set out by the province.

CBC News asked for an interview with Higgs about Madawaska's new tax law and what it means for the provincial government, but it wasn't granted.

David Kelly, a provincial spokesperson, said in an email there is an obligation for any business in the province to remit taxes to the government.

"For that business to operate in the province, or to be supplied within the province, the rules of the province have to be followed," Kelly said.

"Failing to collect or remit tax under the Tobacco Tax Act could result in the suspension of a retail vendor's licence."

Move makes sense, says tax law professor

In 2021, Prime Minister Justin Trudeau's government laid out its intention to engage with First Nations interested in implementing their own fuel, alcohol, tobacco and cannabis sales taxes as part of a move toward reconciliation.

The government reiterated that commitment this year, with the budget document stating, "Since fall 2022, productive discussions have taken place with Indigenous partners, and Indigenous communities have expressed interest in moving forward collaboratively."

The latest step by Madawaska First Nation is a product of that commitment by the federal government to create a framework for Indigenous communities to independently tax fuel, alcohol, cannabis and tobacco, said Vern Krishna, a professor of Canadian tax law at the University of Ottawa.

"Very simply, it shifts the taxing power away from the province or the federal government … and moves it over to the Indigenous communities, and this is intended to facilitate the Indigenous communities looking after themselves and taking care of themselves," Krishna said.

With the framework now in place for First Nations to implement their own tax laws, Krishna said he sees no reason for other communities to hold back from doing the same.

"I would think that it would make economic sense for all of these communities to enact their own tax laws because that is the very purpose of the legislation that is empowering them to do so, to give them their independence and allow them to become self-determining communities."

Communities looking at lay-offs

The tax revenue-sharing agreements for Mi'kmaq First Nations aren't set to expire until the end of this year, however those agreements have been gone for Wolastoqey communities since February.

Bernard said that lost revenue has already forced some Wolastoqey communities to cut funding for food and nutrition allowances for elder residents and for youth centre programming.

She said it's also resulted in the six Wolastoqey communities halting projects and laying off hundreds of employees who worked for the various band governments.

"It's just going to be a larger burden on the communities to help support these people and … the poverty is just going to increase in these communities," Bernard said.

CBC News asked Wolastoqey Nation in New Brunswick and Mi'gmawe'l Tplu'taqnn Inc., organizations representing Wolastoqey and Mi'kmaq communities, if any other First Nation has established its own tax laws, but did not receive a response before deadline.