Bengaluru: The Karnataka government has officially introduced a new excise taxation system based on Alcohol in Beverage (AIB), replacing the over six-decade-old taxation model based on bulk litre of alcohol.

The state government on Friday issued the final notification for the Karnataka Excise (Excise Duties and Fees) (2nd Amendment) Rules, 2026, which will come into effect from May 11.

With the move, Karnataka has become the first state in the country to implement an AIB-based taxation policy for liquor.

New taxation system replaces old bulk litre model

The government had earlier issued a draft notification on April 18 inviting objections and suggestions regarding the proposed amendment. Officials stated that the feedback received during the consultation period had been examined before finalising the rules.

Under the revised system, taxation will now be based on the actual alcohol content or volume present per litre of liquor instead of bulk volume.

According to the notification, AIB refers to the alcohol content in beverages such as brandy, whisky, gin, rum, beer, wine, fruit wine and fortified wine.

The government has also reduced the number of excise slabs linked to liquor pricing from 16 to eight.

Officials said the restructuring aims to simplify the taxation framework and align Karnataka’s excise policy with evolving market trends and consumer preferences.

Price impact expected across liquor categories

Industry sources said the revised taxation structure is likely to significantly impact pricing across various liquor segments.

The first five excise slabs, which include products priced in the lower and competitive maximum retail price (MRP) categories, currently contribute nearly 75 per cent of the state’s excise revenue.

According to industry representatives, the most commonly sold 180 ml tetra pack variants of Indian Made Liquor (IML), including whisky, rum, brandy, gin and vodka, are expected to witness price increases of at least 20 per cent.

Manufacturers of low-cost IML products have reportedly expressed concern that the new taxation model could adversely affect domestic distilleries and regional manufacturers.

Industry sources stated that smaller and regional producers fear the revised policy may disproportionately favour multinational premium liquor brands while affecting local investments and employment opportunities.

Sources also indicated that premium liquor brands may become cheaper by around 16 to 20 per cent under the revised tax structure, while prices of mass-market liquor products could rise by 20 to 25 per cent.

Industry bodies welcome policy shift

The International Spirits and Wines Association of India welcomed Karnataka’s decision to introduce the AIB taxation model.

Chief executive officer Sanjit Padhi described the move as a progressive step towards modernising and simplifying the excise framework in the state.

According to ISWAI, the revised policy is expected to rationalise pricing and bring Karnataka’s liquor taxation structure closer to those followed in other states.

The industry body stated that the policy could encourage growth in the premium liquor segment, which is considered a major contributor to excise revenue.

Sanjit Padhi said the reforms align with the association’s principle of promoting “drink better, not more”, adding that premiumisation may encourage moderation and greater emphasis on quality consumption.

Concerns over local industry and employment

Despite support from premium liquor industry representatives, concerns remain among manufacturers operating in the low-cost and regional liquor segments.

Industry observers warned that any sharp increase in prices of mass-market liquor products could affect consumer demand and place financial pressure on smaller distilleries operating within Karnataka.

Manufacturers have reportedly urged the government to closely monitor the implementation of the policy and assess its impact on domestic producers, employment generation and market competition.

The new taxation framework is expected to significantly reshape Karnataka’s liquor market and excise revenue structure in the coming months.

Officials have not yet announced whether additional revisions or monitoring mechanisms will be introduced after the implementation of the new policy on May 11.