Canada’s restaurant industry is bracing for the biggest jump in the country’s alcohol excise duty in more than 40 years, spurring warnings the tax hike could force some bars and restaurants out of business.
“Any increase at this very vulnerable time for our industry is just another blow while we’re down,” said Brenda O’Reilly, the owner of multiple restaurants and a brewery in St. John’s, N.L.
“It’s like death by a thousand cuts.”
Bar and eatery operators across Canada have endured lockdowns, labour shortages, supply chain mayhem and soaring costs for everything from payroll to cooking oil. Rising inflation has also softened demand as some consumers stay home to save money.
“Many of us haven’t recovered from the pandemic and now they want to raise this tax,” she said. “It’s hard to get blood out of a turnip. We’ll see more restaurant closures if this goes ahead.”
The federal beverage alcohol duty is set to increase 6.3 per cent on April 1.
Alcohol excise duties are imposed at the manufacturing level and adjusted annually based on inflation.
While the duty is separate from provincial liquor board fees and sales taxes, it ultimately filters down to higher prices for consumers, said CJ Hélie, the president of Beer Canada.
The automatic annual tax increase is a long-standing irritant for the beverage industry, but was “digestible” when inflation was around two per cent, Hélie said.
But this year’s adjustment is more than triple the usual increase and should be reconsidered given the state of the industry, he said.
At the retail level, the higher alcohol duty is expected to range from about penny on a can of beer to much more on a bottle of spirits.
The Liquor Control Board of Ontario says a 750 ml bottle or a six-pack of beer may increase by about five to 10 cents, while a bottle of hard alcohol could increase by as much as 70 cents.
Rising Excise Tax No Surprise to Breweries
A 6.3-per cent increase in the excise tax for beer production is on tap for Canadian brewers and local craft brewers are not surprised.
The increase will go into effect on April 1. Excise tax is duty paid on manufactured goods that are levied at the time of manufacture rather than at the time of sale, however, consumers might feel a little pinch as brewers adjust their production costs. The tax is imposed by the federal government on wine, beer, spirits and tobacco products.
Aaron Goerzen opened Lakehead Beer Company with his brother Lucas in October 2021.
“For the most part, tax increases are expected around here. There’s so much in (a state of ) flux right now that it’s not shocking or surprising us. . . . It’s mostly just another thing to roll with the punches,” Goerzen said, adding the increase could impact their supplies and staffing.
Costs for essentials for the production of craft beer, which includes hops and barley grains as well as aluminum cans, have increased dramatically.
In fact, Goerzen says the cost of grains shot up a ridiculous amount this year. “We’re paying nearly an extra 50 per cent,” he said.
George Renner, owner of Dawson Trail Craft Brewery, has been in operation since 2017. He says the excise tax increase is not the best thing in the world for his company but it’s expected.
“Practically every input cost that we’ve seen on our end has gone up, so it’s not thrilling to see it go up from a federal tax point of view, although it’s not surprising,” he said. “We’ve seen costs increase pretty much on everything to do with our business, and it began through COVID. It has definitely been difficult and challenging . . . but I guess I understand where the federal government’s coming from.”
For now, both brewers will see how things add up while their beer costs to the consumer remain the same.
“We will be looking at our pricing and making sure that with the increase everything will make sense,” Renner said. “If the federal government could pause these increases for a certain amount of time, that’s probably not the worst idea in the world. We need to find some sort of normalcy after COVID.”
Goerzen is looking down the same wait-and-see path.
“We’re a new company . . . and it’s just a matter of learning how to navigate this and build it back into our own costs. Frankly, I would say it’s just a matter of how to make it work,” Groerzen said.
“Six per cent for us is not an insane jump, but it does increase costs and the like. Just the costs of shipping and raw ingredients alone are where things are hard.”
Meanwhile, the Canadian Craft Brewers Association (CCBA) in partnership with the Coalition of Canadian Independent Craft Brewers are urging the federal government to modernize the Excise Act, and called it one of Canada’s “oldest pieces of legislation.”
The alliance has recommended an introduction of a progressive, revenue-neutral, federal excise rate schedule for beer that can promote growth for Canada’s independent craft breweries. The CCBA told The Chronicle-Journal that the new schedule would “introduce lower rates for those at the lowest volume tiers to help breweries become profitable, and extend rates for a longer period of time before the maximum tax is reached.”
More than 1,100 craft breweries operate in Canada with 55 per cent of them in rural areas. The industry provides more than 21,000 jobs. These breweries are represented by the CCBA in every province and territory in Canada.
