Province considers tax changes to help small breweries

Deputy premier Thomas Lukaszuk is promising changes to how the province taxes beer, after a group of small breweries warned that the current system stifles their growth and gives a competitive advantage to brewers based outside Alberta.

Lukaszuk said Wednesday he is still studying the issue, but expects to make an announcement later this fall to outline new rules that will help Alberta companies.

“Our No. 1 priority is to encourage the growth of local, made-in-Alberta, niche-market, craft beer breweries,” he said.

“Our perspective is to support Alberta growers and Alberta producers, and if there is any advantage to be given to anybody, that’s where it should go. We want to make sure our structure of taxation is reflective of our goal.”

Concerns with the current markup system were offered in an Aug. 27 letter to Lukaszuk from 11 of the province’s smaller brewers, including Calgary-based Big Rock and Edmonton’s Alley Kat Brewing.

Under rules adopted in 2002, the markup — essentially a sales tax charged to retailers — varies according to the size of the brewery.

For example, a liquor store must pay the province 20 cents for every litre of beer it purchases from small breweries that make less than 20,000 hectolitres of product each year. That tax is then generally passed onto consumers in the price the liquor store sets.

The markup jumps to 40 cents per litre for beer made by companies that have production of between 20,000 and 200,000 hectolitres.

For even larger breweries, a markup rate of 40 cents is applied to the first 200,000 hectolitres sold in Alberta and 98 cents on the next 200,000 litres.

The 98-cent rate is also applied to the largest companies that have an annual worldwide production of 400,000 hectolitres or more.

In the letter to Lukaszuk, the small brewers generally praise this graduated markup system as helping them to get established, but suggest even more market intervention is required to overcome a competitive disadvantage.

That’s because under Alberta’s open-market liquor retail system, the government does not distinguish between local products and beer created elsewhere. As such, microbreweries in Ontario, British Columbia or Texas get the same 20-cent markup rate as beers made by Alley Kat and Wild Rose Brewery.

“We believe that Alberta should only apply the graduated markup program to beer that is physically brewed in Alberta, and that producers from outside the province should pay the maximum rate,” the letter says. This “will increase the viability of the local brewing industry, allowing for increased production, employment and local raw material sourcing.”