Karnataka introduced an alcohol-based excise tax (AIB) system, replacing the previous bulk litre-based excise model, in what the state government described as a first-of-its-kind reform in India, which came into effect on May 11.
Its purpose is to align liquor prices in Karnataka with those in neighboring states while restructuring taxes according to alcohol content.
In a statement issued on Sunday, the Karnataka Excise Department said the move came in the wake of Chief Minister Siddaramaiah’s announcement of Budget 2026-27 and was aimed at rationalizing the pricing of liquor and making liquor available at comparatively lower prices.
“For the first time in India, the AIB-based excise duty structure has been implemented in Karnataka with effect from May 11, 2026. It is globally recognized as the gold standard for alcohol excise,” the ministry said.
The revised framework removes government-run price fixing and allows producers to place products within pricing slabs based on market considerations and alcohol content.
As per the government notification issued on May 8, the number of Indian Made Liquor (IML) bars has been reduced from 16 to eight.
Read also:Liquor prices have been revised in Karnataka after the implementation of the new alcohol tax regime
The restructuring was implemented with an aim to keep liquor prices in Karnataka relatively low and comparable to prices in neighboring Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra and Kerala, officials said.
The policy, first proposed by the KP Krishnan-led Resource Mobilization Committee on Excise Reforms in Karnataka, links excise duty directly to the alcohol percentage in drinks rather than the volume. During his Budget presentation in March, Siddaramaiah described the model as a globally recognized tax system that directly targets alcohol content, “the main source of negative externalities”.
The Prime Minister also set the revenue target $45,000 crore from the tax sector for 2026-27.
Under the new structure, the revised maximum retail prices will apply to products manufactured after May 11. The Excise Department has also directed to publish updated prices and pack sizes of liquor and beer brands in leading Kannada and English newspapers across the state.
Industry estimates suggest that prices for light ales and beers with an alcohol content of 5% may fall by 20% to 25%, while prices for premium Scotch whiskey may fall by about 20%.
Representatives of the alcoholic beverage industry said that premium and imported alcoholic beverages sold by multinational companies are expected to become 16-20% cheaper.
At the same time, trade bodies said lower-priced alcohol products, especially 180ml bottles of whisky, rum, brandy, gin and vodka, could become 20-30% more expensive.
The Karnataka Brewers and Distillers Association said the first five excise slabs – representing nearly 70-75% of the state’s excise revenue and covering most of Karnataka’s distilleries – saw excise duty rise further by 20-30%.
In comparison, tranches 6 to 8, which largely include premium spirits produced by multinational companies, received a 10-15% reduction in excise surcharge, the association said.
A senior member of the association said the retail price of a 180ml bottle in the lowest bracket had already risen significantly over the past year. According to the representative, a quarter of the bottle was sold earlier at a price $63 increased to $80 after a previous review and can now rise further to $105 under the new slab structure.
Domestic manufacturers and trade bodies argued that the revised framework imposed a greater tax burden on liquor categories in the budget dominated by distilleries in Karnataka.
These changes come as the alcoholic beverage industry faces rising production costs linked to global supply disruptions and rising energy prices amid ongoing conflict in West Asia.
The India Brewers’ Association welcomed the implementation of the new system, describing it as a reform that can simultaneously support revenue generation and encourage moderate consumption of alcohol.
“The AIB-based tax structure by the Karnataka government is the first in the country that directly improves revenue maximization with desired public health outcomes. We applaud CM Siddaramaiah for bringing such a major reform in tax policy. We hope other states will also implement such a clear linkage between taxes and alcohol content,” said Vinod Giri, Director General, All India Brewers’ Association.
“The notified tax rates in Karnataka are expected to raise the prices of cheap spirits while at the same time lowering the prices of light alcoholic beverages like beer. This will encourage consumers to shift to a more moderate and less harmful consumption of alcohol. This is what alcohol taxation frameworks around the world are designed to do,” he said.
He added that the model is based on the principle that “the taxable product is alcohol, not water,” and described it as the global standard for alcohol taxation.
