On 11 May 2026, the southern Indian state of Karnataka officially rolled out an alcohol-by-volume (ABV) based excise duty structure, becoming the first state in the country to tax alcoholic beverages according to their alcohol strength rather than their bulk volume. The move, part of the 2026-27 state budget announced by Chief Minister Siddaramaiah, marks a significant shift in India's complex alcohol taxation landscape.
Under the revised framework, Karnataka has abolished its government-controlled liquor pricing system. Producers are now free to determine retail prices within a simplified structure of eight pricing slabs, while excise duty is calculated according to the alcohol content of each product. The government expects the reform to improve pricing transparency, strengthen tax collection and encourage consumption of lower-alcohol beverages while aligning prices more closely with those in neighbouring states.
The immediate effect of linking excise duty to alcohol content has reshaped retail prices across beverage categories. Mild and lager beers containing up to 5% alcohol, as well as premium international spirits including Scotch whisky, have seen retail price reductions of approximately 20% to 25%. In contrast, mass-market Indian Made Liquor (IML), which typically has an alcohol by volume (ABV) of around 42.8% and accounts for nearly 75% of the state's excise revenue, has become 20% to 30% more expensive. For instance, popular 180 ml (0.0018 hl) packs of whisky, rum and vodka have recorded significant price increases.
The reform stems from recommendations by the Resource Mobilisation Committee, which proposed the ABV-based model to calibrate excise taxes according to the social cost of alcohol consumption. The state government has set an excise revenue target of INR 450 billion for the 2026-27 financial year. Industry organisations such as the International Spirits & Wines Association of India have welcomed the new tax structure, arguing that it encourages consumers to shift toward lower-strength beverages. Meanwhile, domestic producers of IML have criticised the reform, saying it favours multinational premium brands while increasing prices for locally produced economy spirits. The new regulatory environment will also closely impact major brewers operating in the state. For example, India's largest beer producer United Breweries, part of the Dutch Heineken group, has already been optimizing its local production footprint to enhance efficiency (inside.beer, June 3rd, 2025).
