In a 1st in India, Karnataka links liquor tax to alcohol content

BENGALURU: Beer and wine could get cheaper as Karnataka rolls out a new alcohol-in-beverage (AIB)-based excise duty system from April, becoming the first state in the country to link liquor taxation directly to alcohol content. The new framework will fully deregulate govt price fixation and halve pricing slabs to eight.

Presenting the govt's 2026-27 budget Friday, CM Siddaramaiah said the uniform excise duty per litre of alcohol would be phased out in 3-4 years, with gradual price changes to avoid market disruption. The reform aims to modernise the excise system, improve transparency, simplify pricing and promote ease-of-doing business.

"An AIB-based excise duty structure is the globally recognised as gold standard for alcohol taxation, as it directly targets the alcohol content which is the primary source of negative externalities," the CM said while he set an ambitious revenue target of Rs 45,000 crore from the excise sector for the next financial year.

In India, typical beer ABV (alcohol by volume) ranges from 4%-8%, with strong variants at 8%. Whiskey generally contains 36%-50% ABV. AIB system taxes higher-strength liquor more heavily, potentially nudging consumers towards lower-alcohol options.

Industry representatives welcomed the policy. "AIB-based taxation is a historic milestone and a beacon for excise policy reforms across India... The product to be taxed is alcohol and not water. It is widely followed all over the world and encouraged by organisations such as WHO," said Vinod Giri, director-general, Brewers Association of India.

A spokesperson for United Breweries appreciated "govt's intent to strengthen the regulatory and policy framework for the sector". The share prices of United Breweries surged after the announcement.

Sanjit Padhi, CEO of International Spirits and Wines Association of India, welcomed the move to free up liquor pricing. "Reducing slabs to eight offers brands flexibility to set prices. While the final tax structure is pending, we hope a stable policy could boost investment and premiumisation, shifting consumers from lower-end products toward higher-value options," he said.

The govt also plans to promote alcohol-linked tourism, allowing tasting sessions and on-site sales at distilleries. Distilleries and breweries will be allowed 24-hour operations, and beer labels will no longer require mandatory disclosure of malt and sugar content.

The tax announcement comes amid a controversy over alleged corruption of Rs 5,000 crore in issue of liquor licences. Opposition had demanded the resignation of excise minister RB Timmapur. He has denied the allegations.

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