A local distiller is feeling the pinch after the Canadian liquor tax rose at the beginning of the month.
The Fort Distillery is concerned with the year-over-year rise of the tax, which went up 2 per cent on April 1.
"It was initially scheduled to increase by 6.3 per cent, which would have been insane," said Nathan Flim, the founder of the Fort Distillery. "There was a pretty big outcry from the distillers, brewers, wineries, so they ended up doing a 2 per cent increase."
"Better than 6.3 [per cent] but still a tax increase."
The federal tax, which distillers have to pay on the products they produce, is on an escalator system. This means that the tax will consistently increase year-over-year by at least 2 per cent.
"It's just constantly going up, regardless of what is going on in the market," said Flim.
The Canadian tax is apparently a lot more than what distillers, brewers, and wineries in the United States have to pay.
"In the United States, a couple of years back, they implemented a scaled excise tax," said Flim. "Basically, for the first certain amount of liquor that you produced, your excise tax is significantly lower."
"Canada does not have this, so I pay the same amount of excise tax as, let's say, Crown Royal which is huge."
According to Flim, this system makes it very hard to compete with American liquor producers who do not have to worry about paying significant amounts of tax on the liquor they produce.
"Canada has one of the highest liquor taxes in the world," said Flim. "The excise tax that we pay in Canada is about 12 times higher than what a small distillery would pay in the U.S."
"Our margins are worse, so we have less money for expansion."
To help deal with these higher taxes, many Canadian distillers are raising the price of their products to recoup losses. So far, Flim has been able to resist the need to follow suit.
"We haven't raised our prices yet, but it is definitely a conversation we are having," said Flim. "Excise tax does make up a pretty decent chunk of the price of a bottle of liquor."
"Our 750ml cocktails in the U.S. sits on the shelf for about $20, and then here in Canada, it sits on the shelf for almost $40. It's almost double the price here in Canada versus the U.S. because our taxes are so high."
It's for these reasons that Canadian distillers are leading a charge to cut down that tax to something similar to what the U.S. currently implements.
"The big push is against this excise tax and most of the political parties are on board with lowering the taxes to equal what they are in the U.S. but the current governing party is not," said Flim.
"[The federal government] makes a lot of money on [the tax]. Anytime they cut tax in one spot, they like to raise it somewhere else."
Flim added that most provinces, including Alberta, do have some tools to help deal with provincial tax.
"Alberta, and most provinces, have a lowered rate of tax for smaller distilleries, so we pay less on the provincial side."
This whole situation has hindered Canadian expansion for the distillery, as they look to instead work their way into the American markets.
"Even though we sell our bottles for less money in the U.S. my margins are much better," said Flim. "The current tax regime really does encourage distilleries such as myself to expand more in the U.S. than in Canada."
The Fort Distillery currently distributes in Wisconsin, Connecticut, New Hampshire, Vermont, and Maine with more U.S. locations on the way.