Canada extends 2% cap on alcohol excise duty inflation adjustment

By Rachel Arthur

- Last updated on GMT


Related tags Alcohol

The federal government has announced a two-year extension of the 2% cap on the annual alcohol excise duty inflation adjustment, as well as announcing reduced excise duty rates on beer to benefit the smaller brewers.

Last April, the government introduced the temporary one-year cap of 2% on increases to excise duties on beer, spirits and wine. But that had been due to end in April, leading to a 4.7% rise in alcohol excise.

However, the two-year extension of the 2% cap - announced on Saturday (March 9) - has been announced to ‘recognize the significant contribution that Canadian wineries, breweries, cideries and distilleries make to the national economy by creating good jobs and high-quality products'.

Spirits Canada, the national trade association representing distilled spirits, has welcomed the 2% cap.

“The choice to cap the excise tax increase at 2% represents alignment on the recommendations that the combined voices of the beer, wine, spirits, restaurant, and hospitality sectors made,” said Cal Bricker, President & CEO of Spirits Canada.

“Since its introduction in 2017, the escalator tax, has subjected alcohol to automatic annual hikes based on changes in the Consumer Price Index (CPI). Initially introduced during a period of 1% to 1.5% inflation, the 2% cap by the federal government brings closer into line, the expectations of a normal inflationary environment.

“This pause creates a stable outlook that consumers, business owners, and the government itself can rely on to plan for Canada’s long-term fiscal stability.”

The domestic Canadian spirits sector sustains more than 8,500 full-time jobs, contributing over $5.8bn annually to the GDP. On a global scale, Canadian distillers export products worth over $660m each year.

Beer relief

The new rates also want to acknowledge the increased production costs faced by small craft brewers in particular. To that end, first 15,000 hectoliters of beer brewed in Canada by a brewery will have the excise duty rate cut in half: providing the typical craft brewery with up to $86,952 in additional tax relief in 2024-25, according to the government’s calculations (The first 75,000 hl of beer produced each year already benefit from a lower excise duty rate as well).

The Canadian Craft Brewers Association estimates there are more than 1,100 small and independent breweries in Canada, of which 95% generate less than $10m in annual revenue.

The organization says the new rule ‘acknowledges the urgency to support Canada’s smaller breweries, which represent more than 20,000 jobs’. In fact, recent data from Innovation Science and Economic Development Canada confirmed that 63% of the breweries producing less than 15,000 hectoliters of beer are not yet profitable – with the amount of provincial and federal markups and taxes creating a ‘significant barrier to profitabiity’.

“The recent announcement demonstrates the Federal Government’s awareness of the critical importance of lessening the tax burden placed on Canada’s locally owned and operated craft breweries,” says CCBA Executive Director Christine Comeau. “Although this does not address the independent brewers producing more than 15,000 hectolitres, this is a welcomed and important first step.”

“We applaud the Federal Government’s recent announcement, but recognize there is still more work to be done to modernize the excise tax schedule to support the larger independent craft brewers,” continues Brad Goddard, Chair of the Coalition of Canadian Independent Craft Brewers. “More than 60% of the country’s craft beer production comes from breweries over 15,000 hectolitres and with further excise tax reductions for these independent breweries they will also be able to significantly contribute to an increase in jobs, beer production, and tourism across Canada.”

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