<p>Karnataka’s proposed new excise policy, announced by Chief Minister Siddaramaiah in his budget speech, signals a long-overdue attempt to modernise a regulatory framework that has remained largely unchanged for over six decades. The reform is welcome because the existing structure, rooted in another era, has struggled to keep pace with a rapidly evolving alcohol industry, changing consumption patterns, and the need for greater transparency. </p><p>The most significant shift in the proposed framework is the move towards an Alcohol-In-Beverage (AIB)-based taxation system, widely regarded as the international gold standard for alcohol taxation. By linking excise duty to the alcohol content of a beverage, the system seeks to tax the component responsible for social harm. The transition, to be phased over three to four years, in theory, encourages a gradual shift towards lower-alcohol beverages. </p><p>The policy also introduces structural reforms aimed at improving the ease of doing business. Pricing slabs will be reduced from 16 to eight, and the system of government-administered price fixation will gradually be deregulated, giving producers more freedom to align with market conditions. Simplified licensing procedures and greater digitisation have been proposed. Even the long-criticised transfer system has been partly addressed, with transfers of key field staff now conducted through digital counselling. Another notable feature is the attempt to integrate the excise sector with tourism by allowing distilleries and breweries to conduct tasting sessions and guided tours.</p>.CIABC, BAI welcomes reforms excise reforms announced in Karnataka Budget.<p>However, the policy also carries significant risks. Excise is the second largest component of Karnataka’s own tax revenue, contributing 20 per cent, second only to commercial taxes, which account for 57 per cent. With collections already reaching Rs 36,492 crore up to February in 2025-26, the government has set an ambitious target of Rs 45,000 crore for the coming fiscal year. The human cost of such targets must not be overlooked. </p><p>Excise enforcement has historically placed immense pressure on field officials to maximise collections, which often translates into encouraging higher consumption. The Chief Minister has assured that the health department will undertake public interventions, including de-addiction and rehabilitation initiatives. However, such assurances have often remained largely on paper. There are also concerns that steep taxation linked to alcohol content could push price-sensitive consumers towards illicit liquor if the transition is not managed carefully.</p>.<p>The attempt to overhaul the excise policy is a step in the right direction, but it must proceed with caution. When a sector that generates tens of thousands of crores in revenue is reshaped, reform must balance fiscal goals, industry growth, and public health with equal care.</p>
<p>Karnataka’s proposed new excise policy, announced by Chief Minister Siddaramaiah in his budget speech, signals a long-overdue attempt to modernise a regulatory framework that has remained largely unchanged for over six decades. The reform is welcome because the existing structure, rooted in another era, has struggled to keep pace with a rapidly evolving alcohol industry, changing consumption patterns, and the need for greater transparency. </p><p>The most significant shift in the proposed framework is the move towards an Alcohol-In-Beverage (AIB)-based taxation system, widely regarded as the international gold standard for alcohol taxation. By linking excise duty to the alcohol content of a beverage, the system seeks to tax the component responsible for social harm. The transition, to be phased over three to four years, in theory, encourages a gradual shift towards lower-alcohol beverages. </p><p>The policy also introduces structural reforms aimed at improving the ease of doing business. Pricing slabs will be reduced from 16 to eight, and the system of government-administered price fixation will gradually be deregulated, giving producers more freedom to align with market conditions. Simplified licensing procedures and greater digitisation have been proposed. Even the long-criticised transfer system has been partly addressed, with transfers of key field staff now conducted through digital counselling. Another notable feature is the attempt to integrate the excise sector with tourism by allowing distilleries and breweries to conduct tasting sessions and guided tours.</p>.CIABC, BAI welcomes reforms excise reforms announced in Karnataka Budget.<p>However, the policy also carries significant risks. Excise is the second largest component of Karnataka’s own tax revenue, contributing 20 per cent, second only to commercial taxes, which account for 57 per cent. With collections already reaching Rs 36,492 crore up to February in 2025-26, the government has set an ambitious target of Rs 45,000 crore for the coming fiscal year. The human cost of such targets must not be overlooked. </p><p>Excise enforcement has historically placed immense pressure on field officials to maximise collections, which often translates into encouraging higher consumption. The Chief Minister has assured that the health department will undertake public interventions, including de-addiction and rehabilitation initiatives. However, such assurances have often remained largely on paper. There are also concerns that steep taxation linked to alcohol content could push price-sensitive consumers towards illicit liquor if the transition is not managed carefully.</p>.<p>The attempt to overhaul the excise policy is a step in the right direction, but it must proceed with caution. When a sector that generates tens of thousands of crores in revenue is reshaped, reform must balance fiscal goals, industry growth, and public health with equal care.</p>
