Manitoba’s alcohol markup system to get refresh

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This article was published 20/06/2023 (1024 days ago), so information in it may no longer be current.

Local breweries and distilleries are praising changes to a tax structure some say disincentivized business growth in Manitoba.

In the past couple months, Patent 5 Distillery pulled back on its promotion of Nifty, a vodka seltzer brand it co-created more than a year ago, co-owner Brock Coutts said.

The company did so because it had upped Nifty’s production levels and crossed a provincial tax threshold; government began taking more money per product purchased, which tightened Nifty’s budget, Coutts said.

Manitoba’s markup system on alcohol will get a refresh beginning Canada Day, the provincial government announced Tuesday.

“That’s awesome for us,” Coutts said. “It totally changes the way we proceed.”

The new system will drastically decrease provincial markups on Nifty, Coutts added. He plans to grow the brand after July 1.

A 69-cent surcharge on refreshments like Nifty — for companies who produce 20,001 to 25,000 litres annually — is being nixed. Instead, such businesses will pay a 21-cent or 95-cent surcharge, depending on production levels.

The province currently taxes breweries at four different levels, based on how much beer the business outputs. Starting Canada Day, there will be two levels and much more room in the less expensive tier.

“It’s a fairly generous threshold,” Municipal Relations Minister Andrew Smith said. “It’ll help (breweries) to reinvest.”

Breweries producing 25,000 hectolitres or less over the course of a year will be charged roughly 10 cents per litre. Once they exceed 25,000 hectolitres — a hectolitre being 100 litres — the province will take 46 cents per litre sold.

The current provincial surcharge taking 30 cents per litre from breweries producing between 18,001 and 25,000 hectolitres of alcohol will be axed.

The new tiering will lessen markup rates for 32 of 50 local small liquor manufacturers, a Manitoba Liquor and Lotteries spokesperson wrote in a statement.

Chris Warwaruk applauded the change.

“As we grew… we were penalized,” said Warwaruk, Farmery Estate Brewery’s co-founder. “(There was) actually a benefit to hold back on your production.”

Major tax jumps came with a crossed tax bracket line, which may have been crossed during the slightest increase in production, Warwaruk said.

Such a jump happened to Farmery in 2018, he added.

“We didn’t have that efficiency and the capacity to actually continue to be competitive in the marketplace… (it) was a big detriment,” he said.

The tax system caused local breweries and distilleries to pass costs to consumers or eat their losses, Warwaruk said.

Breweries are judged on their previous year’s production. If a company made less product than the prior year, they were still paying the higher tax, Warwaruk noted.

“We would sooner be competitive in the marketplace (and) offer a cheaper product so that consumers ultimately can be the winners,” he added.

The province could lose $1 million to $3 million in tax revenue this year with the change, Smith estimated.

He reiterated the move will give business more opportunity to expand.

In 2020, Manitoba announced a reduction of markup rates. Tuesday’s announcement brings a simpler framework, Smith said.

Marcus Wiebe, founder of Dead Horse Cider, stated the system creates a “level playing field” for his company with other alcohol types.

In the current system, cider producers face a surcharge of 69 cents if they produce 30,001 to 50,000 litres annually. The tax jumps to 95 cents for bigger producers.

Beginning July 1, the surcharge will be 21 cents until companies surpass a production level of 2,500 hectolitres. The tax will then increase to 95 cents. It’s the same for refreshments.

Spirit manufacturers that produce more than 25,000 litres annually will face a $1.25 surcharge; anyone smaller has a 27-cent surcharge.

Mead and wine provincial surcharges are $1.94 for producers with more than 25,000 litres per year; smaller entities take a 43-cent surcharge.

gabrielle.piche@winnipegfreepress.com