The government of Karnataka has announced a new way of taxing alcohol. Instead of charging tax based on the total volume of the drink, the state will now calculate tax based on the actual amount of alcohol in the beverage.
This new system, called the Alcohol-in-Beverage (AIB) tax structure, will start from April 2026 and will be introduced gradually over the next three to four years to avoid sudden price shocks.
How the current system works
At present, many Indian states tax alcohol based on how much liquid is in the bottle, not how strong the drink is.
For example, a 750 ml bottle of beer and a 750 ml bottle of whisky could attract similar taxes even though whisky contains much more alcohol.
What will change under the new system
Under the new policy, taxes will be calculated based on the percentage of alcohol in the drink.
For example:
- Beer usually contains 4–7% alcohol
- Whisky usually contains 40–50% alcohol
Because whisky is much stronger, it will attract higher taxes compared to beer under the new system. This could make beer relatively cheaper than strong spirits.
The policy was announced during the state budget presentation by Chief Minister Siddaramaiah.
More flexibility for liquor companies
The government will also remove strict price controls that previously fixed the maximum retail price (MRP) of liquor for several years.
Under the new system:
- Liquor companies will have more freedom to set their own prices based on market demand.
- Price categories will be simplified from 16 slabs to 8 slabs, making the tax system easier.
Industry groups say this change will improve ease of doing business for alcohol producers.
Why the industry supports the change
Organizations like the Brewers Association of India say taxing alcohol based on its strength is considered the global standard and is also supported by health organizations such as the World Health Organization.
They believe the new system may:
- Encourage people to choose lower-alcohol drinks like beer
- Help bring low-income consumers into the regulated market
- Increase beer consumption in the state
India’s largest beer maker, United Breweries Limited, also said the policy could help expand the beer market in Karnataka.
Other plans in the alcohol sector
The government is also planning to promote alcohol tourism by allowing distilleries and breweries to:
- Organize tasting sessions
- Sell products directly to visiting tourists.
For the 2026–27 financial year, Karnataka aims to collect ₹45,000 crore in excise revenue from alcohol sales.
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