The BC Liquor Distribution Branch has announced today that the "liquor board markup" on all products will be increased as of July 1, 2010 as part of the implementation of the HST. The introduction of the HST means that the provincial sales tax on alcohol will actually go down from its current 10% to the 7% provincial component of the HST (the 12% HST is made up of 7% provincial sales tax + 5% federal sales tax). In order to prevent consumers from actually receiving a break on the introduction of the HST (maybe that would have been a good idea?) ... the government had previously announced that they would increase liquor board markups to compensate. Today's announcements make changes to the markups across the board for all products. On wine, the liquor board markup will increase from 117% to 123%. On spirits, it goes from 163% to 170%. If you weren't aware of these staggeringly high "tax" rates ... yes, you are reading those numbers correctly.
The stated intention has always been to keep "shelf prices the same". I ran a few calculations for wine only using the new markup formula and the results were fairly consistent that the end shelf prices were almost identical to the old formula. However, these changes may be difficult to explain to a cynical public ... as the markup goes up by 6%, tax down by 3%. In addition, there is a small problem regarding the legitimacy of moving government revenue generated by tax dollars to government revenue generated by liquor board markup. Revenue from taxes must be considered and passed by the legislature or it is not legal (i.e. no taxation without representation). Revenue from liquor board markup is not passed by the legislature - it is simply implemented by administrative action at the LDB. The government has now "moved" a large chunk of revenue from the tax side (passed by the legislature) to the non-tax side. Is this taxation without representation?
This story has now been covered by the Vancouver Sun: LDB Increases Markup on Booze as HST Lowers Tax
Update (May 25, 2010): I received a press release from Laughing Stock Vineyards today indicating that they intend to pass the HST savings on to their customers for wine ordered directly from the winery. As I explained, in an earlier article, BC wineries will actually get a small benefit from the switch to HST for wine delivered direct from the winery.