The Karnataka government officially enforced its new Alcohol-in-Beverage (AIB) taxation policy on May 11, making it the first state in India to transition from a bulk litre-based system to one pegged on the actual alcohol content of beverages.
Under the new regime, the state has slashed the number of excise slabs from 16 to eight. The move is intended to simplify the framework but would result in a sharp price hike for budget liquor while making premium brands more affordable.
According to the Karnataka’s Brewers and Distillers Association (KBDA), the first five excise slabs, which cater to mass-market consumers and contribute approximately 70-75% of the state's excise revenue, are the most affected by the restructure, given how their Additional Excise Duty (AED) has risen by 20-30%.
A report quoting a senior member of KBDA said the price of 180 ml of Indian Made Liquor (IML), including popular whisky, rum, and brandy, will increase by 20% to 30%. For instance, a starting-slab 180 ml bottle that cost Rs 80 recently is projected to rise to Rs 105 under the new 42.8% tax bracket.
Conversely, premium and imported labels are expected to see price declines of 16% to 20%, the Deccan Herald report said. This shift benefits multinational corporations (MNCs) whose products fall into the higher slabs where the AED has been reduced by 10% to 15%.
The manufacturers of budget-friendly IML have expressed concern that the policy disproportionately favors multinational brands at the expense of domestic distilleries. The association warned that while larger companies can absorb pricing shifts, smaller regional manufacturers limited to budget liquor may face declining volumes and potential shut down.
In contrast, the International Spirits & Wines Association of India (ISWAI) welcomed the move as stated by the Chief Executive Officer, ISWAI, Sanjith Padhi calling it a "forward-looking step" that encourages "premiumisation" and aligns with the principle of "drink better, not more".
The state government defended the structural overhaul as a shift toward aligning taxation with public health impacts. A state-appointed committee estimated that alcohol-related harm, including health issues, road safety incidents, and domestic violence, imposes an annual social cost of nearly Rs 51,000 crore on Karnataka. By standardizing taxation at a rate projected to reach Rs 2,000 per litre of pure alcohol by 2028-29, the government aims to nudge consumers toward lower-strength beverages.
To support this transition, the government has proposed a Social Cost Mitigation Fund earmarked for public health and road safety. The policy also introduces major industry reforms, allowing manufacturers to fix their own retail prices for the first time. To curb illicit trade during this transition, the state will implement blockchain-based tracking, geo-fenced electronic locks, and bottle-level QR codes across the distribution chain.
This article was written by a student interning with TNM.