New Alcohol-in-Beverage (AIB) Excise Duty Structure In Karnataka; Becomes First State To Introduce Alcohol-Based Liquor Tax System
New Alcohol-in-Beverage (AIB) Excise Duty Structure In Karnataka; Becomes First State To Introduce Alcohol-Based Liquor Tax System
The Karnataka government has introduced a new Alcohol-in-Beverage (AIB) excise duty structure, changing the way liquor and beer prices are calculated. The new system links taxation directly to alcohol content and is expected to make some beverages cheaper while increasing prices of others.
Karnataka has become the first state in India to implement an Alcohol-in-Beverage (AIB)-based excise duty structure for alcoholic drinks. The new taxation system officially came into effect on May 11, 2026, and is aimed at rationalising liquor prices while aligning them more closely with neighbouring states such as Maharashtra, Tamil Nadu, Kerala, Telangana and Andhra Pradesh.
The policy was first announced by Karnataka Chief Minister Siddaramaiah during the 2026–27 state budget. According to the Karnataka Excise Department, the AIB-based model is globally recognised because it taxes alcohol based on its actual alcohol content rather than overall liquid quantity.
Under the earlier system, excise duty was calculated on the basis of bulk litres. The new structure replaces this with a formula linked directly to the percentage of alcohol present in a beverage. Officials say the move is intended to create a more transparent and scientific taxation system.
The state government has also deregulated the earlier government-controlled pricing model. Instead of fixed state pricing, liquor manufacturers and producers can now place their products within specific pricing slabs depending on market demand and alcohol strength.
As part of the restructuring, Indian Made Liquor (IML) categories have been reduced from 16 slabs to eight slabs. Officials believe this will simplify the pricing structure while giving companies greater flexibility.
The impact of the new policy will vary across products. Mild and lager beers with around 5 per cent alcohol content are expected to become cheaper by nearly 20 to 25 per cent. Premium Scotch whiskies could also see price reductions of around 20 per cent under the revised system.
However, lower-end Indian Made Liquor categories may become costlier. Reports suggest that products falling under the first five excise slabs could witness price hikes of 20 to 25 per cent.
The Karnataka Excise Department has directed publication of revised Maximum Retail Prices (MRPs) for liquor and beer brands in leading Kannada and English newspapers. The revised rates apply to products manufactured after May 11, 2026.
The state government has set an ambitious revenue target of ₹45,000 crore from the excise sector for the financial year 2026–27. Officials say the restructuring is designed not only to increase revenue efficiency but also to make liquor prices more competitive compared to neighbouring states.
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