Now that the United States has crafted its craft beverage tax reform, Okanagan Spirits is putting pressure on Canada to support its distillers in kind.
U.S. Congress passed the Craft Beverage Modernization and Tax Reform Act Dec. 21, which made permanent a decrease in federal excise rates on the first 100,000 proof gallons of spirits produced by American distilleries.
Washington added the tax reform to Congress’s year-end spending bill 12 months after a one-year extension of the excise decrease, which was set to expire on Dec. 31, 2020.
According to the Alcohol and Tobacco Tax and Trade Bureau (U.S.), tax rates reduced by the bill equate to $2.70 per gallon, compared to $13.50 per gallon for spirits not covered by the reduction.
Tyler Dyck, CEO of Okanagan Spirits Craft Distillery and head of B.C.’s distillers guild, has spoken out in recent weeks about the absence of government support for Canadian distilleries that spent the early months of the pandemic stripping their craft spirits into emergency hand-sanitizer — many of which donated bottles of the solution by the thousands.
In a pair of letters addressed to ministers Chrystia Freeland, Mona Fortier and Mary Ng on behalf of the province’s 70-odd distilleries, Dyck called on the government to follow the example set south of the border.
“We ask that the Canadian government moves to match excise parity with the Craft Beverage Modernization and Tax Reform Act in the U.S.,” one letter said.
“Even a match of the decreased excise rate on half the volume given to the U.S. manufacturers would lead to massive growth in Canada’s domestic industry.”
The U.S. introduced the excise cut as an economic stimulus in 2017, wanting to promote job growth and support domestic grain from small to medium distilleries, according to the letter.
“They did this not because they wanted to give up tax revenue, but so they could in-turn, reap much larger financial and job creation gains downstream,” Dyck said. “It worked fantastically well in the U.S., with almost 1,000 new distillery upstarts and countless other distillery expansions since its implementation, and tens of thousands of jobs created.”
Around the same time the U.S. was lowering its excise rate to one-seventh of Canada’s rate, Ottawa introduced a further tax increase on distilleries.
“At present, we pay $12.610/L and in the U.S., they pay approximately $1.77/L,” Dyck’s letter states.
The cross-border tax imbalance has made it harder for Canadian distilleries to compete in the open market, Dyck said.
“We believe there is a large opportunity for all elected leaders in Canada to help foster the domestic reconstruction of the distilling sector and the economy as a whole as recovery from the pandemic begins.”
As the president of the B.C. distillers guild, Dyck says he’s heard from many distillers in the province who are struggling to stay afloat amid a year of economic downturn, while having contributed to the early push for hand sanitizer after the pandemic created worldwide shortages.
“If the government is worried about protecting against too much in the way of lost revenues, we would suggest even matching the U.S. reduced rate on only the first 25,000L of alcohol produced which effectively more than halves the benefit but still will stimulate massive growth in our domestic sector,” Dyck’s letter said.
“Given the collective need to recover our economy, we believe this would be an ideal time to act and give the public positive news about creating well paying jobs while promoting value-added agriculture.”