Canada caps alcohol tax for one year

An increase in excise duty on alcohol in Canada has been temporarily capped at 2% instead of a planned 6.3% rise.

From 1 April 2023, the Canadian government will cap the inflation adjustment for excise tax on alcohol at 2% for a one-year period. It was due to increase by 6.3% in line with inflation.

The move was announced in the government’s Budget statement on 29 March.

Trade body Spirits Canada said the decision strikes a compromise based on the Standing Committee on Finance’s (FINA) recent recommendation to freeze the automatic excise increase for two years.

Since 2017, the government has implemented automatic annual tax increases on alcohol based on the Consumer Price Index (CPI). When it was first introduced, inflation was sitting in the range of 1% to 1.5%.

The FINA called on a freeze on tax until inflation returns to the 1% to 3% target range, Spirits Canada said.

“This outcome is certainly better than the anticipated 6.3% tax hike,” said Spirits Canada’s president and CEO, Jan Westcott.

“Given the challenging economic times we’re all dealing with, a two-year reprieve would have been ideal, however, we do appreciate the government’s decision to cap the excise increase at 2%.

“Canadians already pay some of the highest alcohol taxes in the world, but this gesture of support for consumers and for our struggling hospitality sector will help minimise the resulting price increases.

“Considering the record high inflation, capping the escalator increase is a step in the right direction.”

Spirits Canada said the country’s distilling sector supports 8,500 full-time jobs and contributes CA$5.8 billion (US$4.28bn) annually in gross domestic profit.

Furthermore, Canadian distillers export more than CA$660 million (US$487m) worth of products every year.

In November, CGA research revealed just over one in five consumers in Canada planned to reduce their visits to the on-trade for the rest of 2022 because of rising costs.