It\’s time for BC to put the HST issue behind us. But one of the major lessons learned from this is that government needs to be honest and fair with respect to any implementation of taxes. In a culture that is demanding transparency and accountability from both governments and businesses, it is simply not acceptable when government engages in taxation schemes which are either unfair or which lack transparency. These lessons should be a wake-up call to the BC government that it needs to transform its tax policies with respect to wine. Let\’s take a look at the current tax system on wine and see how it measures up on both fairness and transparency.
Fairness
Has BC Set the Tax Rates on Wine Fairly? The basic taxes on wine in BC are staggeringly high at 135% (123% liquor board markup plus 12% HST). The liquor board markup is really a hidden tax since most of it goes directly into the government\’s general revenue. This tax rate is applied on a product that is actually good for you when used as intended, in moderation (there are tons of studies on this, and here is the latest). By contrast, no amount of soda pop is good for you and it is taxed at 12%. No amount of junk food is good for you and it is taxed at 12%. BC should be encouraging moderate consumption of wine. Taxing it at these levels is simply bad public policy. It punishes moderate drinkers for no reason when they are acting responsibly and obtaining health benefits from an agricultural product that has been part of civilized society for thousands of years.
Are BC\’s Wine Taxes Applied Fairly to Consumers? If government decides to tax at exceptionally high levels, one would expect, at the very least, that the taxes would be applied fairly. This is not done in BC. Imported wines are subject to the 135% tax level across the board. However, BC wines in the \”direct delivery\” channel are exempt from the liquor board markup and taxed at only 12%. Wine made at \”u-brews or u-vins\” is also exempt from the liquor board markup and taxed at only 12%. Any wine purchased in a restaurant/hotel/bar is subject to further punitive treatment because the government denies wholesale discounts to these licensees, further inflating the end price for consumers and increasing the applicable sales taxes. The total taxes paid in retail stores also differs dramatically because the government does not license stores in any consistent fashion: tax levels vary from 12% in VQA stores up to 135% in LDB stores selling imported wine. Any wine imported into BC beyond duty-free limits is also subject to punitive tax levels of about 100% of the retail price.
Transparency
Does BC Disclose Its Taxes on Wine Honestly? In other provinces, the government discloses the applicable tax levels on wine openly … perhaps because they are more reasonable (see here for Alberta\’s amounts). In BC, there is no disclosure of liquor board markups on the BC LDB web site or upon any other government web site.
Does the BC Govt Run the LDB Openly and Efficiently? Part of the reason that the liquor board markups are so high is that it costs the government almost $300 million per year to run the monopoly liquor system, the LDB. Most monopolies are subject to oversight by a regulator who ensures that the monopoly acts reasonably. However, the LDB operates without any regulatory oversight and information about its efficiency and operations is extremely difficult to obtain. Most knowledgeable retailers think that the LDB\’s operations costs are way too high and that many of its business policies are inefficient and uncompetitive: see here for some examples.
The most unfortunate part of the above is that these government tax policies create a huge drag on development and growth not just in the wine sector but also in the hospitality and tourism industries. There would likely be an explosion of economic activity and job creation in these areas if the government simply \”got out of the way\” and created fair and sensible tax policy for wine. The Hong Kong government did this a few years ago and transformed HK very quickly into one of the world\’s leading cities for the wine business. We could do the same in BC.