Stronger Liquor, Higher Price: Karnataka Proposes Amended Tax Policy

The Karnataka government issued a draft notification proposing a structured taxation system based on alcohol strength, product category and declared price. 

The draft lists amendments to the Karnataka Excise (Excise Duties and Fees) Rules, 1968, and will be open for public objections and suggestions for seven days before final consideration. 

The amendments formally define "Alcohol-in-Beverage (AIB)" as the measure of alcohol content per litre across categories such as whisky, rum, beer, wine and other alcoholic products, signalling a shift towards a more standardised taxation metric. 

Under the revised Schedule A, Indian Made Liquor (IML) such as brandy, whisky, gin and rum supplied to defence and paramilitary canteens will attract Rs 50 per bulk litre at 42.8 per cent v/v, while also retaining a proof-litre based levy for stronger formulations. For regular commercial distribution, the duty is significantly higher, fixed at Rs 1,000 per litre of pure alcohol, indicating a sharp differential between civil and defence channels. 

Bottled and draught beer with up to five per cent alcohol content will be taxed at Rs 12 per bulk litre, while beer with alcohol content above between five and eight per cent will attract Rs 20 per bulk litre. 

The most significant restructuring introduces a price-linked slab system for Additional Excise Duty (AED) and Additional Countervailing Duty (ACD). According to the slab table, IML duties range from Rs 50 per litre of pure alcohol in the lowest price bracket (up to Rs 470 per case) to Rs 3,700 in the highest slab for premium liquor priced above Rs 5,001. 

Similarly, beer under Schedule D is taxed based on declared price bands, with AED/ACD ranging from Rs 800 to Rs 2,700 per litre of pure alcohol depending on the pricing slab.

The draft also maintains concessional or differential treatment for defence supplies, exports and inter-state transfers, where lower duty rates or exemptions apply.

Overall, the proposed amendments indicate Karnataka's move towards a dual-parameter excise framework combining alcohol strength (AIB) and market price to determine tax liability. The structure is expected to increase the tax burden on premium and high-strength liquor segments while maintaining lower rates for institutional and defence channels.