Karnataka’s proposed shift to an alcohol excise tax (AIB) regime has sparked competing responses from industry bodies, with a broad consensus emerging that while the reform represents a structural shift, its impact across liquor categories may be uneven.
The Confederation of Indian Alcoholic Beverages Corporations (CIABC) warned that the framework risks disproportionately affecting India’s high-volume, low-priced foreign liquor sectors if it is not carefully balanced. “It is also important that the policy is not seen as favoring any particular category, including beer, as is currently proposed,” said federation director general Anant S Iyer.
He described the AIB regime as a reform-oriented move but stressed the need for balance: “The introduction of the Alcoholic Beverages (AIB) mechanism is a progressive step and reflects the government’s intent to reform the sector. However, the framework must be carefully calibrated to achieve balanced outcomes across three critical pillars – consumer affordability and pricing outcomes, industry sustainability with scalable production, and government revenue with a focus on revenue quality.”
These concerns focus on IMFL’s lower segments, which account for more than 85% of monthly volumes and a significant share of state revenues. “Affordability for a large number of consumers remains paramount, especially in the lower IMFL segments (1-5),” Iyer said, adding, “After the May 2025 duty hike, these segments have already seen a decline in growth of around 6%, and the current policy direction risks further deepening this trend in FY26-27.”
He warned that the proposed structure could have wider consequences: “The continued volume contraction with the proposed AED (additional excise tax) for 1-5 bars of spirits will have a cascading effect across the value chain – from distilleries and bottling units to ancillary industries – while also impacting the agricultural ecosystem dependent on grains and molasses.”
While the CIABC cited risks to the spirits sector, the Indian Brewers’ Association strongly supported the shift, calling it a structural correction. “By announcing the AIB-based taxation mechanism, Karnataka has become the first state in the country to explicitly link the goal of state revenue maximization with desired public health outcomes,” All India Brewers Association Director General Vinod Giri said.
The brewers’ body said this approach was consistent with the World Health Organization’s global practices and recommendations, and pointed to complementary reforms such as price liberalization, 24-hour operations and simplified licensing.
At the same time, the Karnataka Brewers and Distillers Association has highlighted concerns that cut across sectors. Karnataka Brewers and Distillers Association president Arun Kumar Parasa said the proposed changes could lead to higher retail prices, particularly affecting commonly consumed categories, and noted that the issue would be discussed with the chief minister.
Officials noted that the first four price brackets — which largely cater to low-income consumers — could see the greatest impact under the new system. These categories represent approximately 80% of excise revenues. Prices for the standard 180ml bottle have increased from $80 l $95 last year, it can increase to approx $105-110 if the proposal is implemented.
Under the draft Karnataka Excise (Excise Duty and Excise) (Amendment) Rules, 2026, taxes will shift from a price-linked slab system to a system based on alcohol content per litre. Spirits such as whisky, rum, gin and brandy will attract uniform duty $1,000 per liter of pure alcohol, with a similar rate applied to beer.
The CIABC asked whether such a shift would achieve the intended revenue outcomes if it changed consumption patterns across categories. “Data across states consistently indicate that IMFL generates 4 to 6 times higher excise revenue per case compared to beer,” Iyer said, adding that “the perception that beer consumption has a much lower impact on health is often overstated, as higher consumption volumes often offset lower alcohol strength.”
He also pointed out the risk of market distortions across states: “It is also important to ensure that prices remain in line with neighboring states. Any emerging price distortions – especially in beer, despite the higher ex-brewery costs in Karnataka – could lead to market imbalances.”
The state government has called for objections and suggestions to be submitted within seven days of notification of the draft rules. As the consultation process evolves, industry responses indicate that a key challenge will be balancing public health and revenue objectives without disproportionately impacting specific consumption-driven categories of alcoholic beverages and tax collection.
