From April, Karnataka will become the first state in India to introduce an Alcohol-in-Beverage (AIB) based excise duty system for liquor. The new taxation method will change how alcohol is taxed in the state and could also influence liquor prices.
While presenting the state budget on March 6, Chief Minister Siddaramaiah announced that the government-controlled price fixation system will be completely deregulated. Under the new policy, distillers will decide the price category in which their products fall. The state government expects this change to help increase its excise revenue.
What is the AIB Tax System?
The AIB system taxes alcohol based on the actual alcohol content in a beverage. In simple terms, the higher the percentage of alcohol in a drink, the higher the excise duty charged on it.
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The government says this model is widely used internationally and is considered the “gold standard” for alcohol taxation because it directly targets the alcohol content, which is seen as the main factor linked to social and health impacts. This approach will replace the existing taxation system currently followed in the state.
Changes to the Existing Excise Structure
At present, alcoholic beverages in Karnataka are classified into 16 different price slabs. A product is placed in a particular slab based on its Declared Price, which is the selling price fixed by the distiller. The Additional Excise Duty is then calculated based on the price per litre of that product.
Because this system taxes liquor according to price rather than alcohol content, premium liquor brands often attract significantly higher duties, making them more expensive in the market.
Under the new AIB-based system, this method will gradually be phased out. For the financial year 2026–27, the government plans to merge several slabs and reduce their number from 16 to 8. A formal notification regarding the revised slab structure is expected soon.
According to Excise Minister R. B. Thimmapur, the government intends to completely remove the slab system over the next four years, though the transition will be done gradually to avoid sudden disruptions.
How the New System Will Work
Currently, two liquor brands with the same alcohol content can attract different duties if their declared prices differ. For example, a lower-priced whisky and a premium whisky may both contain 42% alcohol, but the premium product pays higher duty because of its price category.
Under the AIB model, both products would attract the same rate of additional excise duty if their alcohol content is the same, regardless of their declared price.
Possible Impact on Government Revenue
Excise duty from alcohol is a major source of income for the Karnataka government. For the 2026–27 financial year, the state has set a target of ₹45,000 crore in excise revenue.
Officials say that around 60% of the current excise revenue comes from the lower price slabs, meaning cheaper liquor contributes the largest share of tax income. Premium liquor, on the other hand, generates relatively less revenue because high prices have limited its sales.
With the introduction of the AIB-based system, the government expects premium liquor sales to increase, which could eventually contribute more to the state’s revenue.
Impact on Liquor Prices
The exact effect on liquor prices will become clearer once the revised slab structure is officially announced. However, officials suggest that premium liquor prices may fall slightly, while the pricing dynamics of cheaper liquor could change depending on the final tax structure.
Overall, the new AIB-based taxation system is expected to modernise Karnataka’s alcohol tax framework and bring it closer to global standards.
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