Understanding the Excise Act

As concerning changes in April 2023

2023-03-05 - David Redl

To my Canadian readers, there is a lot of misleading information going around about the excise duty on alcohol which is set to increase on April 1st. I've seen blogs and news sites claim that the price of a can of beer or bottle of wine is increasing by 6.3% and it's going to break the bank for hard working Canadians. Most of them seem to want to claim this is Trudeau's fault somehow, even though the Excise Act that governs the increase was passed in 2001. Sure, Trudeau hasn't altered or repealed it, but neither did Harper when he was prime minister from 2006-2015.

To clear the air, because I like both math and reading legislation, here are some numbers on how much more expensive your drinks are going to be after April 1st. I'll break down how this works after.

• a pint of most beer will cost 1 cent more (although it will be even less for beer brewed in Canada, so buy local)
• a 750ml bottle of most wine will cost 3 cents more
• a 750ml bottle of 40% rum will cost 25 cents more

As you may have noticed, these increases are not a huge portion of the overall cost of those beverages. In fact, it isn't a proportion of the cost at all. A $10 bottle of wine and a $100 bottle of wine will increase by the same amount. So why do people think the price will increase by 6.3%? I'd like to believe it isn't because they are willfully misreporting facts to stir up controversy and they are just really bad at understanding how excise duties work and the difference between percentages and percentage points.

An excise duty is applied at exactly one point in the lifespan of a product. This is typically when a manufacturer or an importer sells the product. If they are selling it to a wholesaler, then they don't apply the excise duty and instead the wholesaler will do so when they sell it. Excise duties are not based on a percentage of the cost of the product. They are based on the amount of a thing being sold. They also tend to deal with very large amounts of things, which is why if you read the Excise Act, 2001, you will see that beer is indexed per hectolitre (yes, per 100 litres) because those are the kind of amounts that matter to bars and restaurants.

The 6.3% increase is to the excise duty amounts, not to the product price or any portion thereof. The increase each year takes place on April 1st and is indexed to inflation via the Consumer Price Index.

So how much are the excise duties and how much are they increasing? Well, there are a lot of different categories and subcategories so I'll stick to the main ones (being the ones I mentioned above).

Beer that is packaged in Canada but not brewed here (if it were brewed here, the duty gets more complicated but also cheaper, so consider this an upper bound) currently has an excise duty of $34.82 per hectolitre of beer if the beer contains more than 2.5% ethyl alcohol by volume. That $34.82 will increase by 6.3% to $37.01 per hectolitre, an increase of $2.19 per hectolitre. Divide this by 200 to get the amount increase per pint which is 1 cent.

100% Canadian wine made from honey or apples packaged on or after June 30th, 2022 is not subject to excise duty. There's another reason to buy local and try new things. But if we consider the typical grape wine, the current duty rate is $0.688 per litre of wine if the wine contains more than 7% ethyl alcohol by volume. That $0.688 per litre will increase by 6.3% to $0.731 per litre, an increase of $0.043 per litre. A typical bottle of wine is three quarters of a litre so the increase per bottle will be three quarters of that or about 3.2 cents per bottle.

Spirits containing more than 7% absolute ethyl alcohol by volume have an excise duty applied in a weird way. It is $13.042 per litre of absolute ethyl alcohol in the spirit. This means that higher percentage spirits will have a higher duty applied. The $13.042 will increase by 6.3% to $13.863, an increase of $0.821. For 40% alcohol that works out to an increase of $0.328 per litre or about 25 cents per bottle.

Hopefully this is one of the times where a little bit of math clears the air rather than confuses. Keep enjoying those drinks, Canadians, and consider buying local!

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