E-Malt.com News article: Canada, AB: Alberta considering tax changes to help microbreweries

Deputy premier Thomas Lukaszuk is promising changes to how the province taxes beer, after a group of small breweries warned that the current system stifles their growth and gives a competitive advantage to brewers based outside Alberta, Edmonton Journal reported on October, 3.

Lukaszuk said he is still studying the issue, but expects to make an announcement later this fall to outline new rules that will help Alberta companies.

“Our No. 1 priority is to encourage the growth of local, made-in-Alberta, niche-market, craft beer breweries,” he said.

“Our perspective is to support Alberta growers and Alberta producers, and if there is any advantage to be given to anybody, that’s where it should go. We want to make sure our structure of taxation is reflective of our goal.”

Concerns with the current markup system were offered in an Aug. 27 letter to Lukaszuk from 11 of the province’s smaller brewers, including Calgary-based Big Rock and Edmonton’s Alley Kat Brewing.

Under rules adopted in 2002, the markup — essentially a sales tax charged to retailers — varies according to the size of the brewery.

For example, a liquor store must pay the province 20 cents for every litre of beer it purchases from small breweries that make less than 20,000 hectolitres of product each year. That tax is then generally passed onto consumers in the price the liquor store sets.

The markup jumps to 40 cents per litre for beer made by companies that have production of between 20,000 and 200,000 hectolitres.

For even larger breweries, a markup rate of 40 cents is applied to the first 200,000 hectolitres sold in Alberta and 98 cents on the next 200,000 litres.

The 98-cent rate is also applied to the largest companies that have an annual worldwide production of 400,000 hectolitres or more.

In the letter to Lukaszuk, the small brewers generally praise this graduated markup system as helping them to get established, but suggest even more market intervention is required to overcome a competitive disadvantage.

That’s because under Alberta’s open-market liquor retail system, the government does not distinguish between local products and beer created elsewhere. As such, microbreweries in Ontario, British Columbia or Texas get the same 20-cent markup rate as beers made by Alley Kat and Wild Rose Brewery.

“We believe that Alberta should only apply the graduated markup program to beer that is physically brewed in Alberta, and that producers from outside the province should pay the maximum rate,” the letter says. This “will increase the viability of the local brewing industry, allowing for increased production, employment and local raw material sourcing.”

Neil Herbst, co-owner of Alley Kat, said it is unfair to apply the same tax rate to brews from other jurisdictions, because most of those jurisdictions do not give Alberta beers the same courtesy.

For example, other provinces often tack on storage fees and additional taxes to suds from outside their borders, he said. Non-local breweries may also have to apply to a committee to get their products listed, be required to submit detailed marketing and sales plans, and can even be subject to price manipulation.

Herbst said he would like to see a little “quid-pro-quo” from Alberta by applying the reduced markup rate to local products only.

“Basically what this is about is levelling the playing field and enhancing brewing industry in Alberta,” he said. “If you look anywhere else, it seems there is a new brewery a week in B.C, and the same in Ontario.”

“In Alberta it’s been somewhat stagnant and that’s because there is no advantage to setting up here. You might as well set up elsewhere and ship into Alberta.”

As a result of the current system, 46 breweries from other parts of Canada have products available in Alberta, while just one Alberta brewer exports outside the province, the letter states.

The small brewers also ask Lukaszuk to consider an adjustment to the markup system so that companies producing less than 20,000 hectolitres have a 10-cent rate and those between 20,000 and 50,000 hectolitres have a 20-cent rate.

Liberal MLA Kent Hehr said he recognizes some people won’t like the idea of further intervention in the market, but the Alberta government won’t have much luck convincing other provinces to adopt the same free-market rules.

“Alberta is an anomaly in this respect and I think that’s why our craft brewers are having a difficult time,” he said. “They need to realize their mission of spreading free enterprise to the rest of Canada is not working. Get on board with what is working and protect our local industry here.”

Hehr said the province will also need to set and enforce tight rules on what constitutes an Alberta brewery. He said reduced markups should be given only to brews that are made from start to finish in Alberta.

Hehr listed the Calgary-based Minhas Creek Brewery as a company that should not be granted a reduced rate because it currently produces most of its beer in Wisconsin and ships it to Canada.

“This is just a tax giveaway to a de facto American corporation.”

Owner Ravinder Minhas said he has no problem with small producers getting a better markup, but feels the rates should be kept the same for beer produced in other jurisdictions.

The fact that microbreweries have been established in Alberta shows the current system provides enough opportunity for locals, said Minhas.

As well, toughening the rules on imported beer will make it more difficult for Alberta to export its own products, he said.

Minhas’s company, which produces about 200,000 hectolitres annually, has just opened a Calgary site. Minhas said the plan is to gradually move his entire operation to Alberta from Wisconsin, but it takes time.

Lukaszuk said his forthcoming announcement will include a definition of what constitutes an Alberta brewery.


05 October, 2012