Canada, BC: Craft brewers face rising exchange tax

In 1981, John Mitchell was granted the first craft brewery licence in Canada. A year later, he opened Horseshoe Bay Brewing and started a cottage industry that became a revolution, MSN reported on March 10.

Forty years later, B.C. has 240 craft breweries, holds a 30-per-cent market share of B.C.’s total beer sales, and employs over 4,500 people across the province.

Now brewers are on the hook for a 6.3-per-cent increase to the federal excise tax, a tariff that is tied to inflation. The excise tax rate is adjusted annually based on fluctuations in the Consumer Price Index, a model that has been in place since 2017.

After hovering at around one to 1.5 per cent for the last few years, this year’s increase will hit craft brewers hard, says Ken Beattie, executive-director of B.C. Craft Brewers Guild.

“The majority of craft brewery businesses in B.C. are small producers, independently owned and operated,” said Beattie. “The money that is collected by them stays in the province, in the community, and creates jobs locally. We should look after these small breweries.”

Federal excise taxes are a production tax that applies to beer, wine and spirits, as well as cannabis, with different rates for different products. The standards for beer were put in place in 1985, when craft beer production was still a cottage industry.

The levy is calculated on a sliding scale that goes from zero to 75,000 hectolitres, paid per litre, according to a set rate that rises as production increases. A brewer who produces up to 2,000 hectolitres of beer would be taxed C$1.851 per hectolitre, with the incremental increases capping out at C$15.734 for production between 50,000 to 75,000 hectolitres.

A hectolitre is 100 litres, the equivalent of about two kegs of beer.

The more you produce, the more you pay, but the cap at 75,000 hectolitres makes the sliding scale advantageous to large, conventional breweries that benefit from economies of scale, selling massive quantities with no increase in tariff.

“If we continue on this path of the current model, it prohibits our ability to grow, to hire more people, to expand into other markets, and prohibits the smaller breweries to get to our size,” said Don Gordon, president of Vancouver’s Parallel 49 Brewing.

The industry has already struggled due to COVID and skyrocketing costs such as fuel surcharges and dramatic spikes in the cost of barley and aluminum cans.

The Canadian Craft Beer Economic Impact Study, commissioned by the Coalition of Canadian Independent Craft Brewers and the Canadian Craft Brewers Association, recently proposed a reformed excise tax schedule favouring small breweries that produce under 5,000 hectolitres, and recommended that the excise rates be increased for breweries over 500,000 hectolitres as part of a revenue-neutral excise tax reform.

Despite these efforts, the 6.3-per-cent increase slated for April 1 remains in place.

Gordon, a member of the Coalition of Canadian Independent Craft Brewers, said he is hopeful the federal government will be open to more dialogue, as well as reform that will level the playing field.

“The craft beer industry has been playing in the shadows of big beer — a few players that have the lion’s share of the business — but our voice isn’t being heard yet,” said Gordon.

“A reduction in federal excise will create more jobs, investment and expansion, it would also be a revenue-neutral position to the federal government if there was a model that levelled it out and made it more fair,” said Gordon.

As for whether the price of craft beer will be going up, “It’s a tough one right now,” said Gordon. “We know there are less available dollars for craft beer, wine, and spirits among consumers.”

In response to questions from Postmedia, Adrienne Vaupshas, a spokesperson for federal Minister of Finance Chrystia Freeland, said, “Alcohol excise duty rates are adjusted by law on an annual basis to account for inflation. The April 2023 adjustment of 6.3 per cent would be equivalent to approximately three-quarters of a cent per 355 mL can of beer.”

11 March, 2023