Last Updated on April 7, 2023 by YGK News Staff
As of April 1, the federal excise tax came into effect on beer, wine, and spirits, adding an additional 2% tax to businesses at the source of production.
The excise tax was introduced in 2017 and meant to increase according to the rate of inflation, this year initially set to rise to 6.3% before being capped after lobbying from the alcohol industry and all but one opposition MP voting in favour of a motion to scrap the historically high hike.
The choice is in the hands of producers whether to absorb the cost of the tax themselves, incrementally raise the price unit or immediately pass along the tax – spokespeople for The Beer Store and LCBO couldn’t confirm if most suppliers had begun implementing the tax based on listed prices.
Josh Hayter, the President of Spearhead Brewing, says he thinks a lot of the craft brewing industry will wind up eating the tax and that it’ll be more common for larger breweries to pass it along given the volume they’re dealing in.
He says he’s glad the federal government moved away from the initially proposed 6.3%, but he would have liked to see them hold off like the provincial government as the industry continues to try to recover from losses over the past couple years.
“Our industry has been kicked in the teeth so many times,” Hayter said.
He says while the grip the pandemic has had on breweries has definitely been loosening, continued staffing shortages at restaurants have contributed to a lower need for alcohol supply.
In the grand scheme of things, the increased tax is small in the overall scope of problems the industry is facing.
Hayter says on top of the increasing taxes and hampered sales, the rising cost of ingredients and supplies like boxes and cans is often lost in the conversation.
He says in a lot of cases inflation started early in the industry.
“It was already hitting us 6-8 months before,” Hayter said.
“That was all because of the scarcity… because so few kegs were being produced and it was all cans those commodities suddenly shot way, way up in price. And like everything in the world, once it goes up it never goes down.”
Trevor Lehoux, CEO and Brewmaster at Skeleton Park Brewing, says while a tax hike isn’t warmly welcomed the 2% increase is relatively small among all the taxes producers pay.
The tax is volume based, and he says even in their busiest months the proposed 6.3% hike that would only be about $43.
He’s shocked that this, of all issues in the industry, is the one that has caused the most stir.
“Everybody is making a really big deal about it, and it’s good I mean we’ve gotta push back against sharp hikes like this,” Lehoux said.
“But it’s kind of like a situation where you’re worried about piranhas in the water when there’s sharks.”
He says just the provincial taxes he’s paying monthly account for thousands of dollars, and that we should really be asking why the taxes are so high already when other countries don’t have this in place.
“We could have affordable, reasonable prices for beer but we can’t,” Lehoux said.
“My hands are tied, I cannot sell my beer for any cheaper than I do even if I wanted to. It’s not due to this one tax, it’s due to a lot of things.”
He adds though, the timing is horrific as the industry just starts to recover from COVID and many businesses are preparing to repay their Canadian Emergency Business Account (CEBA) loan by the end of 2023.
Those who meet that deadline will qualify for loan forgiveness of up to 33%, but many still won’t be able to and will have to repay as much as $60,000.
Lehoux says he thinks we could see the end of many small breweries and alcohol producers when that time comes.
“If you look at all these things that are coming down the pipeline, there’s going to be a bit of a reckoning here and this is really bad timing for sure,” Lehoux said.
The tax increase also comes nearly off the heels of a Canadian Centre for Substance Abuse (CCSA) report on alcohol significantly lowered guidelines for consumption considered healthy and safe.
The January report saw a dramatic reduction from the 2011 recommendation of capping weekly alcoholic drinks at 15 for men and 10 for women, with CCSA now recommending no more than two.
Lehoux says the industry is also going to be battling back against that, and that he’s afraid the hammer hasn’t really come down yet from the government.
All in all he says a lot of the industry is reeling and feeling unsupported.
“I was supposed to get the support from my government,” Lehoux said.
“I did all the things that the government asked me to do to keep our community safe and I was promised that we would be reimbursed for that, and we weren’t.”
It could be a rough year for the industry without intervention, Hayter adds that many breweries have disappeared over the last six months and that could very well continue in the near future, and larger suppliers are happy to fill in those spaces with less overall local production.
“It’s sad to see because we have a thriving industry here,” Hayter said.
“As a group we employ way more Ontarians than they do… we have a very large impact on the economy.”
The federal excise tax will again be revisited for April 1, 2024.