Karnataka New Excise Policy: First State To Adopt Alcohol-In-Beverage Liquor Tax System

Karnataka has rolled out a new excise policy introducing the Alcohol-In-Beverage (AIB) tax system, making it the first state in India to levy excise duty based on alcohol content rather than pricing categories. The move, based on the recommendations made by the K.P. Krishnan-led Resource Mobilisation Committee, is part of the State's broader effort to generate Rs 45,000 crore from the excise sector.

A senior Excise Department official said the policy came into effect on May 11 through the Karnataka Excise (Excise Duty and Charges) (2nd Amendment) Rules, 2026, which were finalised after public consultations on a draft issued on April 18.

Previously, Karnataka followed a 16-slab taxation system that classified alcoholic beverages largely according to price ranges. The revised framework simplifies the structure into eight slabs, narrowing the gap between low- and high-priced liquor categories.

However, the new model has triggered concern among domestic liquor manufacturers. According to the Karnataka Brewers and Distillers Association (KBDA), the first five slabs, which largely cater to mass-market consumers and include most state-owned distilleries and contribute nearly 70-75% of Karnataka's excise revenue, have seen Additional Excise Duty (AED) increase by 20-30%, Deccan Herald reports. In contrast, AED rates for slabs 6 to 8, covering premium alcoholic beverages produced by multinational companies, have reportedly been reduced by 10-15%.

The KBDA further argued that while large multinational companies can absorb pricing fluctuations across broad product portfolios, smaller regional distilleries focused on budget liquor could face declining sales volumes and even closure.

The policy is intended to discourage consumption of high-alcohol-content liquor by taxing stronger beverages more heavily. However, industry representatives warn the changes may have the opposite effect in the short term, as under the revised taxation structure, premium and imported brands from companies such as Diageo, Pernod Ricard, United Spirits, Bacardi, Heineken and Carlsberg could see retail prices fall by 16-20%. Meanwhile, budget liquor products, especially 180 ml tetra packs of whisky, rum, brandy, gin and vodka, are expected to become costlier by 20-30%. For instance, a senior KBDA member pointed out that a 180 ml bottle in the lowest slab cost Rs 63 last year. After an initial increase to Rs 80, the new policy is expected to push the price further to Rs 105, largely due to a 42.8% tax bracket, as per a DH report.

Meanwhile, the International Spirits & Wines Association welcomed the shift, saying it aligns with the principle of "drink better, not more." On the other hand, the Confederation of Indian Alcoholic Beverage Companies (CIABC) expressed concerns about the policy's impact on domestic manufacturers. Local distillers have also alleged that the framework disproportionately favours multinational beer and spirits companies at the expense of homegrown producers.