Karnataka govt issues draft on alcohol-by-volume tax regime

Bengaluru: In a move that could significantly alter the pricing landscape of the spirits industry, the state government has issued a draft notification to implement a tax system based on the actual alcohol content in beverages. 

If finalised, Karnataka will become the first state in India to adopt the Alcohol-in-Beverage (AIB) taxation model, a practice common in the West. 

Wine Merchants Association General Secretary B Govindraj Hegde said that the proposed shift from the current MRP-linked slab system to an alcohol-by-volume (ABV) metric is expected to trigger at least a 10-20 per cent price hike for Indian Made Liquor (IML), specifically impacting popular cheaper spirits like ‘Old Tavern’. 

The brunt of this policy shift is likely to be felt by the lower-income segment. Under the existing system, liquor is sold across various price slabs.

However, the new draft suggests that higher alcohol concentration will attract higher tax. 

Currently, the first four slabs of liquor which account for nearly 80 per cent of the state’s excise revenue contain an average alcohol strength of 42.8 per cent ABV.

So, typically a 180 ml bottle (quarter) the price of which currently retails between Rs 80 to 95, could jump to Rs 105 to 110 once the new rules take effect. 

“The first four slabs cater to the general public. A sharp increase in prices here will undoubtedly disrupt the market dynamics and a slow poison for our trade. We intend to discuss this with the chief minister and are hopeful that the government will consider industry feedback before issuing the final notification,” he said. 

The move marks a departure from the state’s six-decade-old excise policy. By targeting the pure alcohol content rather than the total volume of the liquid or its market price, the government aims to streamline revenue collection.

The government has invited objections and suggestions on the draft notification.