Jim Flaherty, the Canadian Minister of Finance, strongly opposes proposals that have been put forth by the International Monetary Fund and several of the members of the G20 to impose a special tax on all banks. He has argued: “We’re a sovereign country. We can regulate our banks and our other financial institutions as we see fit.”

Mr Flaherty should be commended for his admirable defence of Canada’s sovereignty.

I wonder how he or the Prime Minister might react if the U.S. suddenly declared that, according to its version or interpretation of the North American Free Trade Act (NAFTA), it had the unilateral right to tax all Canadians, and to issue “status Canadian” cards to those inhabitants of Canada deemed to be Canadian, so that it could choose to exempt some of these status Canadians from some of the taxes to be imposed by the U.S. Government.

No need to spend more time on this hypothetical scenario for we know how the Government of Canada would respond. Fortunately, there is only one version of the NAFTA, although at times there appear to be multiple interpretations of some of the clauses in the NAFTA.  As well, Canada has a tax treaty with the U.S. that sets out in glorious detail how each country can tax its citizens and foreign residents.

Yet, almost 135 years ago the Government of Canada unilaterally enacted the Indian Act. Under section 87 of this Act, the Government of Canada has granted “status Indians”, defined by this Act, a limited degree of exemption from Canadian taxes. It is critical to note that the Indian Act is legislation of Canada. It was not the product of negotiations between sovereign First Nations and the Government of Canada.

Nowhere in the historic treaties between the First Nations and the Crown, originally the U.K., and then Canada, did any First Nation give up its sovereignty, and acquiesce to be governed and taxed by a foreign power, namely, the Crown. Consequently, the legality, under international law, of the Indian Act is very much in question, just as would be an Act passed unilaterally by the U.S. Government declaring its right to tax Canadians and to selectively decide which Canadians might be exempt from U.S. taxation.

The Indian Act continues to govern the affairs of sovereign people without their consent, and to subject First Nations’ citizens to Canadian taxation without any tax treaty or other formal agreement. Where is Finance Minster Flaherty’s outrage at the continuing extraterritoriality of the Indian Act? Why does he have no trouble imposing Canada’s rules and tax policies on sovereign nations?

The right to set tax rates and formulate tax policies belongs to a government, and it is an important instrument for a sovereign nation to possess. If First Nations are to have self-government and eventually be treated as equals, they alone must determine how their people should be governed, and this includes how they should be taxed.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.