Karnataka scraps liquor price control structure, adopts alcohol-based tax

Karnataka will end liquor price control and adopt an alcohol-in-beverage-based tax from April 2026, with reforms aimed at transparency, compliance ease and boosting excise revenue

The Karnataka government on Friday announced a series of reforms in the state’s liquor taxation and regulatory framework, including the introduction of a new alcohol-based duty structure, deregulation of price fixation, and technology-driven monitoring systems.

 

Industry experts say the move, aimed at improving transparency and easing compliance, could boost premium Indian spirits categories.

 

Chief Minister Siddaramaiah, presenting the Budget for a record 17th time, also set a revenue target of about ₹45,000 crore for 2026-27 from the state’s excise department. Karnataka’s excise revenue collections as of February in 2025-26 stood at about ₹36,492 crore, up 12.7 per cent year-on-year.

   

As part of the overhaul, the state plans to end direct price control over the liquor industry from April and introduce a new duty structure based on alcohol content.

 

“An alcohol-in-beverage (AIB)-based excise duty structure is globally recognised as the gold standard for alcohol taxation, as it directly targets the alcohol content, which is the primary source of negative externalities,” Siddaramaiah said.

 

Under the proposed system, there will be a uniform excise duty, while an additional excise duty (AED) will be levied within a defined range based on ex-factory price slabs. Another major shift is the complete deregulation of government-administered price fixation. Producers will be allowed to determine product placement within price slabs based on market considerations.

 

“Karnataka is one of India’s largest beer-consuming states, and this is a progressive step by the state government. Until now, the concept of alcohol strength-based taxation was largely followed only in Western countries. By adopting this approach, Karnataka becomes the first state in India to eliminate long-standing disparities in the taxation of different alcoholic beverages,” said an executive at a liquor company, who did not wish to be named.

 

The state also plans to deploy blockchain-based digital tracking systems to monitor liquor movement. In addition, Siddaramaiah announced that distilleries and breweries will be allowed to operate and dispatch products round the clock, and the requirement to display malt and sugar content on beer labels will be removed.

 

To promote alcohol tourism, distilleries and breweries will also be allowed to conduct tasting sessions and sell products directly to tourists.

 

According to the Indian Malt Whisky Association (IMWA), these steps signal a broader shift towards recognising quality-driven categories such as Indian single malts and premium craft spirits.

 

“A transparent and simplified excise structure can encourage responsible growth, foster innovation among domestic distillers, and create a more level playing field for premium Indian spirits,” said Rajesh Chopra, director general of IMWA.

 

The Brewers Association of India (BAI) described the AIB-based excise duty structure as a landmark reform in alcohol taxation. “Linking taxation with the quantity of alcohol in the product is based on the premise that the product to be taxed is alcohol and not water,” said Vinod Giri, director general of BAI.

 

Giri added that AIB-based taxation is widely followed globally and is encouraged by bodies such as the World Health Organization.

 

However, some industry players flagged areas of concern.

 

Anant S Iyer, director general of the Confederation of Indian Alcoholic Beverage Companies, said that while the rationalisation of excise slabs is a positive step, any increase in duty on lower-priced segments could affect sales.

 

He noted that slabs one to four account for roughly 85-90 per cent of spirits sales in Karnataka, making them the primary drivers of excise revenue. “If duty slab rationalisation is accompanied by higher duties in these segments, it could lead to a further decline in sales and impact revenue in the medium term,” Iyer said.

 

Iyer also pointed out that the Budget did not address some demands of the wine industry, noting that the reforms mention only distilleries and breweries.

 

Bengaluru-based United Breweries Limited (UBL), which produces Kingfisher and Heineken-branded beers, said the measures were steps in the right direction while noting that beer has significant growth potential in Karnataka.

 

“We appreciate the government’s intent to strengthen the regulatory and policy framework for the sector. The overall impact will depend on the final contours and detailed provisions, which we look forward to reviewing once the policy is notified,” a UBL spokesperson said.

 

Following the announcement, shares of Bengaluru-based distillers and brewers rallied on Friday. United Breweries Limited closed at about ₹1,760 per share, up 6.66 per cent, while United Spirits Ltd ended at ₹1,390 apiece, gaining 4.91 per cent.

 

Stocks of other Indian liquor companies also rose. Radico Khaitan closed at about ₹2,785 apiece, up 8.52 per cent; Tilaknagar Industries at about ₹450, up 5.62 per cent; and Allied Blenders and Distillers (ABD) at about ₹477, rising 5.66 per cent.

 

Sanjit Padhi, chief executive officer of the International Spirits and Wine Association of India, said market-driven pricing benefits consumers, the government, and suppliers alike.

 

“These reforms have the potential to influence investment, portfolio expansion and pricing strategies for spirits makers. Investment is driven by market size, profitability, ease of doing business and policy stability. With nearly 93 per cent of the market currently concentrated at the lower end, the right tax structure could accelerate premiumisation and encourage consumers to move up the price ladder, unlocking greater investment across categories,” Padhi said.