Canada is set for its largest alcohol tax increase yet.
Canada is set for its largest alcohol tax increase yet.
Canadians may soon be paying more for their favorite alcoholic beverages as the federal tax on alcohol is set to increase by 6.4% on April 1st. The “escalator tax” was introduced in 2017 and is designed to increase automatically over time based on the rate of inflation, to avoid the need for frequent renegotiation. Due to recent inflation in Canada, the tax is now set for its largest increase ever, and while a penny hike in beer prices may not sound like much, it will have ripple effects on producers and distributors, ultimately impacting consumers.
The tax increase could lead to a single beer increasing in price by one cent, while a 12-pack of beer may go up by 10 cents. Similarly, a 750 ml bottle of wine could see a price increase of nearly three cents, while a 750 ml bottle of 40% alcohol by volume spirit may increase by 70 cents. The impact on the price of craft beer is predicted to be smaller, as it is usually sold at a higher price point, but larger manufacturers are likely to be affected more.
The tax increase is expected to cost Canada’s food-service industry around $750 million a year, with the average casual dining restaurant estimated to pay an extra $30,000 towards alcohol. The increase will also have a ripple effect on costs, as the tax is a production tax imposed on the brewer, which is then magnified by other fees and taxes imposed by distributors, retailers, and provinces, including sales taxes.
The carbon tax is also set to increase from $50 to $65 a metric ton of carbon on April 1st, which could impact alcohol prices as most producers do not have completely green supply chains. Moreover, provinces may individually increase their tax on alcohol. Overall, the escalator tax alone will result in Canadians paying an extra $125 million per year to the government.
Industry groups are calling on the federal government to freeze current alcohol taxes until inflation reaches closer to the Bank of Canada’s 2% target. MPs have also voted in favor of a motion calling on the government to cancel the alcohol tax increase. As inflation continues to rise, it is essential to reconsider the automatic formula of the escalator tax, which is putting the industry under pressure.