Karnataka’s liquor tax plan stirs industry alarm

Karnataka’s plan to change how it taxes liquor has set off a sharp debate in India’s alcohol industry, with trade groups warning that the proposed system could raise prices for lower-cost spirits while giving beer a different treatment under the new rules.

The state government has proposed shifting to an Alcohol-in-Beverage, or AIB, tax model in 2026, replacing a price-linked excise structure with one based on alcohol content per liter. Under the draft rules, whisky, rum, gin and brandy would face a duty of ₹1,000 per liter of pure alcohol, with beer subject to a similar rate. The government has said the change is meant to improve revenue collection and align taxation more closely with alcohol strength.

Industry groups say the impact would not be even across categories. The Confederation of Indian Alcoholic Beverage Companies said the proposal could hit lower-priced Indian Made Foreign Liquor, or IMFL, more than other segments if it is not adjusted carefully. The group said the lower IMFL slabs account for more than 85% of monthly volumes and a large share of state revenue, making them especially sensitive to any increase in duty.

Anant S Iyer, the confederation’s director general, said the reform should not be seen as favoring any one category. He said the policy needed to balance consumer affordability, industry sustainability and government revenue. He also warned that after duty increases in May 2025, lower IMFL segments had already seen about 6% decline in demand, and that further pressure could deepen that trend in fiscal 2026-27.

The concern among spirits makers is that higher duties could push up retail prices for mass-market bottles and reduce sales volumes. Officials cited in the report said the first four price slabs, which are mostly bought by lower-income consumers, could face the steepest effect. A standard 180 ml bottle that rose from ₹80 to ₹95 last year could climb to about ₹105 to ₹110 if the proposal goes through.

The industry also argues that lower sales would affect more than just liquor companies. It could ripple through distilleries, bottling plants and suppliers tied to grain and molasses production. That would matter in a state where alcohol taxes are an important source of revenue.

Beer makers have taken a different view. The Brewers Association of India backed the move, saying Karnataka would be the first state to explicitly connect tax policy with public health goals through an AIB system. Vinod Giri, the association’s director general, said the approach reflected global practice and recommendations from the World Health Organization. He also pointed to related reforms such as price deregulation, round-the-clock operations and simpler licensing.

Still, even groups that support reform say there are risks if pricing becomes uneven across categories or compared with neighboring states. The Karnataka Brewers and Distillers Association said higher retail prices could affect commonly consumed products and planned to raise the issue with Chief Minister Siddaramaiah.

The draft Karnataka Excise (Excise Duties and Fees) Amendment Rules, 2026 were published for public comment, and the state invited objections and suggestions within seven days. As that process continues, companies are pressing for changes they say would protect revenue without sharply raising costs for consumers who buy the cheapest spirits.