Karnataka Proposes Excise Tax Overhaul for Stronger Liquor

Karnataka has proposed a new excise tax structure that would tie liquor duties more closely to alcohol strength and declared price, a move that could raise costs for stronger drinks and premium brands while keeping lower rates for some institutional sales.

The draft notification, issued by the state government in Bengaluru, would amend the Karnataka Excise (Excise Duties and Fees) Rules, 1968. It is open for public objections and suggestions for seven days before the government makes a final decision.

At the center of the proposal is a new definition of “Alcohol-in-Beverage,” or AIB, which would measure the amount of alcohol per liter across categories including whisky, rum, beer, wine and other alcoholic products. The government appears to be moving toward a system that uses both alcohol content and market price to determine tax liability.

For beer, the draft keeps bottled and draught products with up to 5% alcohol content at Rs 12 per bulk litre. Beer with alcohol content above 5% and up to 8% would be taxed at Rs 20 per bulk litre. That means stronger beer would face a higher duty than standard beer under the proposed rules.

The broader restructuring goes further by introducing price-linked slabs for Additional Excise Duty and Additional Countervailing Duty. For Indian Made Liquor, including brandy, whisky, gin and rum, the duty would range from Rs 50 per litre of pure alcohol in the lowest price bracket, covering cases priced up to Rs 470, to Rs 3,700 in the highest slab for premium liquor priced above Rs 5,001.

The draft also keeps separate treatment for supplies to defense and paramilitary canteens. Those sales would attract lower rates than regular commercial distribution. For example, Indian Made Liquor supplied to those channels would be taxed at Rs 50 per bulk litre at 42.8% alcohol by volume, while regular commercial sales would face a duty set at Rs 1,000 per litre of pure alcohol.

Beer under another schedule would also be taxed by declared price bands, with AED and ACD ranging from Rs 800 to Rs 2,700 per litre of pure alcohol depending on the pricing slab. The proposal preserves lower duties or exemptions for exports and inter-state transfers as well.

The changes suggest Karnataka is trying to build a more standardized excise system that taxes drinks according to both strength and value. If adopted, the policy would likely increase the tax burden on premium liquor and higher-strength products while leaving lower-strength beer relatively less affected.