The next prohibition

·3 min read

A tax levied against produced goods, known as an excise tax, recently made news this year after the wine industry decried an announcement from the Canadian government that an exemption for wine makers from the tax would be repealed come 2022.

But it’s not just wine that is subject to excise tax. The tax is also paid on cider, beer and spirits. And it’s the last of those — the spirits — which actually pay the most tax, both in federal excise and provincial tax.

“You start out getting a distillery by talking to the (Canada Revenue Agency),” said Michael Waterstone, vice-president of government relations for the Ontario Craft Distillers Association.

“Historically, alcohol, especially spirits have been taxed at a very high rate … it’s significantly higher than beer or wine,” he said, calling it a “burden” and “prohibitive” to industry growth.

In 2017, under the Trudeau government, former finance minister Bill Morneau introduced a legislated yearly excise tax increase (also known as an escalator tax) that is based off the Consumer Price Index.

The Canadian Taxpayers Federation, the Canadian Chamber of Commerce and the spirits industry all took immediate issue with the move.

“They basically buried an automatic tax increase in the regulations,” said Aaron Wudrick, federal director at the Federation.

With an impending increase on April 1, 2021 an industry battered by the pandemic, and those same advocacy groups, are urging the government to repeal the escalator, or at minimum, freeze the present rate of $12.61 per litre of 100 per cent alcohol.

“It doesn’t make good economic sense to have a rigid automatic tax increase that will go up every single year and that can’t account for economic circumstances,” said Ryan Greer, a senior director at the Canadian Chamber of Commerce.

The alternative would be for a proposed increase to be brought before parliament and debated. And it’s exactly that “hassle” Greer believes the government is trying to avoid.

Before Jan Westcott became president and CEO at Spirits Canada, he was a CEO at Brewers of Ontario, and the Canadian Wine Institute before that.

“It’s a massive problem,” Westcott said of the legislated increase. “When 80 per cent is already going to government, a tax that increases every year automatically regardless of the circumstances literally just kills the business.”

Westcott said makers of spirits have two choices: raise prices to protect an already thin margin or eat the cost.

Geoff Dillon, owner of Dillon’s Small Batch Distillers in Beamsville, was asked by Niagara This Week if he would be passing the cost down to the consumer.

“No, we’re just eating these costs,” he said.

“We’re competing against the big multinationals at the LCBO. We’re such a small portion of the market, we can’t afford to keep raising our prices, people won’t buy,” Dillon added.

So, the margins for distillers like Dillon’s keep narrowing with no end in sight.

What next year’s excise rate will be isn’t yet known, but the most recent increase this past April saw the rate per average 750 mL bottle of spirits with 40 per cent alcohol, rise from $3.71 to the present $3.78.

“Unless the business environment changes dramatically, it just means that there’s a relatively fixed amount of money that’s at play in the sale of spirits across Canada, and every year the government is just reaching into that pot and taking more and more and more,” Westcott said.

“People in Canada are going to continue to drink beverage alcohol. The question really becomes, is any of it going to be made here?”

Jordan Snobelen, Local Journalism Initiative Reporter, Niagara this Week