Tax on alcoholic beverages set to be based on their actual alcohol content

Bengaluru: Karnataka is set to overhaul its liquor taxation system, proposing a shift from the existing bottle-based structure to one linked to alcohol strength. This move could reshape pricing across categories, from beer to whisky.

In a draft notification issued under amendments to the Karnataka Excise Rules, 1968, the State Government has proposed an Alcohol-by-Volume (ABV)- based excise duty framework.

The new system seeks to tax alcoholic beverages based on their actual alcohol content rather than packaging category or fixed price slabs. Central to the proposal is the concept of “Alcohol-in-Beverage” (AIB), which calculates duty based on the quantity of pure alcohol per litre.

Under the draft, distilled spirits supplied to distributors will attract an excise duty of Rs. 1,000 per litre of pure alcohol, irrespective of whether they are manufactured within the State, sourced from other parts of the country or imported. A similar rate has been proposed for bottled beer at the wholesale level.

Structural change in policy

The proposed shift marks a structural change in the State’s excise policy, linking revenue more directly to alcohol strength. Industry observers say stronger beverages could become costlier under a uniform alcohol-content benchmark, while lighter variants may see relative price adjustments.

For supplies to defence and paramilitary canteens, however, the existing bulk-litre system will continue for now. Beer in this segment will remain taxed at Rs. 12 per bulk litre for alcohol content up to 5 percent and Rs. 20 per bulk litre for beer with 5 to 8 percent alcohol content.

The draft also proposes changes to Schedule D, introducing a hybrid model that combines price-based slabs with per-litre alcohol taxation and suggests a phased transition rather than                                 an immediate shift.

Officials said the proposal will be finalised after a public consultation process, during which objections and suggestions will be examined by Finance Department.

If implemented, the reform could mark a significant shift in Karnataka’s excise regime, aligning taxation more closely with alcohol strength and potentially resetting pricing across retail and                                        hospitality segments.