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BC LDB: What\’s Happening with the Licensee \”Discount\” (HST)?

Some licensees have recently received information that the BC LDB will be eliminating the licensee \”discount\” which is currently provided to restaurants and bars due to the introduction of the HST on July 1st 2010. Currently, the provincial alcohol sales tax is removed from the price charged to licensees because it is added in on the customer\’s bill when they purchase the product so licensees pay a price which is approximately 10% less than the shelf price (the provincial sales tax on alcohol is currently 10%).

If the LDB eliminates the discount, the licensees would pay the full shelf price for all purchases without any discounts or exemptions. The licensee could claim an input tax credit later in order to recover the amounts paid. However, this would have a negative effect on licensees because: a) they would have to pay more up front to purchase their liquor which would affect their cash flow, and b) the input tax credit for the HST will be 12% whereas the combined current discount and GST tax credit equals 15%. Licensees would thus pay about 3% more for their liquor because the government would have moved some of the price from sales taxes (which the licensee got credits for) into the liquor board markup (for which their is no credit). As a result, the wholesale cost to licensees would increase and it seems likely that wine prices would increase on restaurant menus in order to compensate.

None of this information is confirmed as yet. If it is correct, it will be disappointing because, in my view, restaurants and bars should be given some form of wholesale discount just like in nearly every other jurisdiction in the world. Restaurants can buy food and other beverages at wholesale … why can\’t they also buy wine and liquor? I will provide an update once I receive concrete information. Apparently, there will be some type of official announcement next week.

In any event, the tax that the customer pays on the alcohol portion of their bill will decrease slightly from the current level of 15% to 12%.

UPDATE (2010-06-17): The LDB has now distributed their package on the affects of the HST. It confirms that there will be zero discount for licensees as of July 1st. I\’ll post further on this but it also appears from the examples contained in the package that restaurants and bars will need to re-price all liquor items on their menus if they want to maintain their profit margins.

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