A Tax Reduction — We’ll Drink to That

After a large outcry from distillers, brewers and the restaurant industry, the federal government has eased the April 1 tax hike on liquor.

As we reported on this site back on March 3, taxes on alcohol were set to increase by 6.3 per cent. But, in this week’s federal budget, the decision was made to lower that to a two per cent hike.

Shayna Hansen, co-owner of Edmonton’s Hansen Distillery, said the clemency from the feds is welcomed.

“We are encouraged that this year’s excise sales tax will be capped at two per cent in comparison to the projected 6.3 per cent increase, which would have severely restricted our ability to remain competitive both in local markets and outside of Alberta,” she stated in an email.

“As a small business, we have already felt the impacts of inflation — on everything from our ingredients to our supplies and the rising utility and operational costs. At Hansen, we take pride in using real ingredients – all of which have increased over the past year. The cap on this year’s excise tax also means that we can continue to make an affordable, high quality local product for our customers to enjoy without compromising our values. As a member of the Alberta Craft Distillers Association, we know that this sentiment is echoed by our partners and friends in the industry.”

The ACFA had been outspoken critics of the planned tax hike, as was Restaurants Canada. Local restaurateurs told us that the timing of such a large hike — when they’re already dealing with skyrocketing costs for ingredients — would have been very damaging to their businesses.

The reason the tax was scheduled to go up by 6.3 per cent is thanks to how the Excise Act is set up. The federal law calls for alcohol duties to go up every April, and that the hike would be tied to the rate of inflation. But 2022 and 2023 has seen inflation numbers rocket upwards, which meant for a much larger than usual liquor tax hike.

“We are extremely pleased that the federal government heard the pleas of the hundreds of small and large producers of Canadian craft alcoholic beverages and limited this year’s increase to only two per cent,” said Stavros Karlos, the executive director of the ACFA. “This is just the beginning. The Canadian federal government has made our entire industry uncompetitive due to the exorbitantly high levels of taxation. Canadian producers continue to lose market share to American companies. The punitive tax environment has limited the ability of small Canadian manufacturers to purchase capital equipment, compete research and development work on innovative products and expand their operations. Until the automatic excise escalator is repealed and replaced with a competitive progressive excise tax, our producers will not be able to compete internationally.

The feds warn that the break is only good for 2023.

“Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at two per cent, for one year only, as of April 1, 2023,” read the budget documents.

That means, we could be back next year with another liquor-tax debate, if inflation rates remain high.