India’s southern state of Karnataka will introduce a new alcohol tax system based on Alcohol-in-Beverage (AIB) from April, a reform that could lower prices for beer and wine while potentially increasing taxes on stronger spirits.
The move will make Karnataka the first Indian state to directly link alcohol taxation to alcohol content, part of a broader effort to modernise the state’s excise system and simplify pricing structures.
Presenting the 2026–27 state budget on Friday, Chief Minister Siddaramaiah said the current excise system — which taxes alcohol under a uniform “per litre of alcohol” framework — will be gradually phased out over the next three to four years. The transition will be implemented progressively to avoid sudden disruptions to the market.
The reform aims to improve transparency, simplify pricing and create a more business-friendly environment for alcohol producers and distributors.
“An AIB-based excise duty structure is globally recognised as the gold standard for alcohol taxation, as it directly targets alcohol content, which is the primary source of negative externalities,” Siddaramaiah said.
Although the detailed tax formula has not yet been released, the new system is expected to benefit lower-alcohol beverages such as beer and wine, while higher-alcohol spirits including whisky, rum and brandy could face higher taxes.
In India, alcohol excise duties are not set by the federal government but are administered and collected by individual states, resulting in one of the world’s most complex and fragmented alcohol tax systems.
Tax rates and structures vary widely across regions, with each state adopting its own framework.
Karnataka, located in southern India, is one of the country’s more economically developed states. Its capital Bengaluru, often referred to as India’s Silicon Valley, has a large population of young professionals and a sizeable alcohol market, making it an important base for international drinks companies such as Diageo and Pernod Ricard.
The state is also one of India’s largest sources of alcohol tax revenue, generating around 400 billion rupees annually.
Under the current system, alcohol taxation in Karnataka is relatively complex, typically combining Excise Duty, Additional Excise Duty (AED) and other charges, with significant differences across beverage categories.
Price controls to be scrapped
Alongside the new tax system, the state government plans to simplify alcohol regulation by removing price controls on alcoholic beverages.
Under the existing framework, producers or importers must submit detailed cost structures to the government, which then sets a maximum retail price after review.
The new policy will allow companies to determine their own retail prices, giving brands greater flexibility in pricing.
At the same time, the number of tax slabs used in price calculations will be reduced from 16 to eight, further simplifying the tax structure.
Industry welcomes the reform
Industry groups have broadly welcomed the new policy.
Vinod Giri, director-general of the Brewers Association of India, described the reform as a major milestone.
“AIB-based taxation is a historic milestone and a beacon for excise policy reforms across India. The product to be taxed is alcohol and not water. It is widely followed all over the world and encouraged by organisations such as the WHO,” Giri said.
Sanjit Padhi, CEO of the International Spirits and Wines Association of India (ISWAI), also welcomed the decision to liberalise alcohol pricing.
“Reducing the number of price slabs to eight offers brands greater flexibility to set prices,” Padhi said.
“While the final tax structure is still pending, we hope a stable policy will encourage investment and support premiumisation, guiding consumers from lower-end products toward higher-value choices.”
More positive signals for India’s drinks market
The reform comes amid a series of policy developments that could reshape India’s alcohol market.
Over the past year, the Indian government has signed free trade agreements with New Zealand, the European Union and the United Kingdom, while also reaching a preliminary trade agreement with the United States. These deals are expected to reduce tariffs on imported wine and spirits.
The Karnataka reforms are seen as another positive signal at the state level. The government is also exploring measures to promote alcohol-related tourism, including allowing wineries to host tastings and sell products directly to visitors.
Distilleries and breweries may also be permitted to operate 24 hours a day, while beer labels will no longer be required to disclose malt and sugar content.
However, the policy announcement comes as the state government faces controversy over allegations of corruption linked to alcohol licence allocations worth about 500 billion rupees.
Opposition parties have called for Excise Minister RB Timmapur to resign, though he has denied the accusations.
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