Canada: Looming tax increase latest blow to tapped out beer sector in Canada

Those who speak for Canada's beer industry say a sizable tax increase which will take effect next month should be reconsidered — calling it the latest blow to financially-squeezed breweries, CBC reported on March 11.

The federal government is set to increase the country's beer excise tax by 6.3 per cent April 1 to account for inflation. Excise duties are also imposed on spirits, wine, tobacco, cannabis and vaping products.

Shane Groendahl, co-founder of Blindman Brewing in Lacombe, Alta., north of Red Deer, said the increase will cost the brewery an additional C$5,000 per year.

"We do have a smaller or a lower rate than larger multinational brewers do, but that doesn't mean that it doesn't apply pressure to us in the same way," Groendahl said.

The rate is applied according to the volume a brewery produces and the amount of alcohol in the beer. For domestic brewers, the current excise tax ranges from C$3.482 to C$29.597 per hectolitre (100 litres) of beer, for beer containing more than 2.5 per cent absolute ethyl alcohol by volume.

The federal government will table its next annual budget March 28, days before the tax increase is set to take effect.

In a recent report, the House of Commons Standing Committee on Finance — which includes political parties across all affiliations — recommended the upcoming budget include a freeze on federal beer, wine and spirit excise duties.

They recommended the excise tax be held at 2022 rates for 2023 and 2024, and until inflation returns to the Bank of Canada's one-per-cent to three-per-cent target range. Trade association Beer Canada submitted that recommendation.

Beer Canada president CJ Hélie said Canada already has the highest beer taxes in the G7.

"Taxes are already really, really high … it's not a tax reduction, it's not a tax cut, it's not a handout. It's just saying let's freeze the rates right now given the unique circumstances," he said.

"Brewers in Alberta and elsewhere are facing these huge operational cost increases."

Hélie said Alberta barley prices have increased about 60 per cent, packaging costs have increased about 40 per cent and transportation fees have nearly doubled.

The 6.3-per-cent increase is the biggest that Christine Comeau, executive director of the Canadian Craft Brewers Association, has seen, she said.

The group wants Ottawa to reconsider the way the tax is levied. The national body said Canada is home to more than 1,100 craft breweries that account for more than 21,000 jobs.

The association said the vast majority of those breweries are less than five years old, and most are not yet profitable.

"I'd say it's unprecedented," she said. "The cans and the labels, transportation, energy costs, labour, everything is going up, and up and up, and they can only absorb so much."

She added that craft brewers are concerned that if they raise prices for their beer too much, people will no longer buy it.

Adrienne Vaupshas, press secretary for the Office of the Deputy Prime Minister and Minister of Finance, said in an emailed statement that alcohol excise duty rates are adjusted by law on an annual basis to account for inflation.

The April adjustment would be equivalent to approximately C$0.0078 per 355 ml can of beer, she said.

Vaupshas said the government has "taken action on a number of fronts" to support Canadians with the cost of living, including doubling the GST credit, providing a C$500 top-up to Canadians struggling to pay their rent and providing dental care to children.

Robert Carter, managing partner at food service advisor StratonHunter Group in Toronto, agreed that the tax increase comes at an inopportune time.

"The overall consumption of alcohol and beer and wine in particular has been on a decline … the timing of this is a challenge for the industry, particularly as we're coming into an economically more challenging time overall," he said.

He added that there are tax breaks for small breweries, but ultimately the price of beer will rise, even without factoring in the excise tax.

"Particularly among some of the craft, where they just don't have the scale and volume to manage costs more effectively as some of the larger domestic players overall," he said.

"At the end we will see higher beer prices for the consumer."

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