Karnataka AIB tax regime sparks turf war between brewers and distillers

Karnataka’s new Alcohol-in-Beverage (AIB) excise regime has triggered a turf war between brewers and distillers, with competing claims over whether the tax overhaul is delivering a fair balance between revenue generation, consumption patterns and public health.

Introduced on May 11, 2026, the policy has coincided with a sharp increase in beer sales, even as Indian-Made Liquor (IML) continues to drive most of the growth in excise revenue. The contrasting trends have prompted the Confederation of Indian Alcoholic Beverage Companies (CIABC) to question the regime’s effectiveness, while the Brewers Association of India (BAI) has defended it as a progressive taxation model.

Beer sales rise nearly 50 per cent

According to Karnataka government figures cited by CIABC, beer sales rose 49.69 per cent year-on-year to 126.68 lakh cases in July-September, against 84.63 lakh cases in the corresponding period last year. IML volumes grew just 1.52 per cent to 171.69 lakh cases from 169.12 lakh cases.

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However, the revenue picture tells a different story. IML revenue increased 13.36 per cent to Rs 9,033.21 crore, generating an additional Rs 1,064.52 crore. Beer revenue rose 18.52 per cent to Rs 1,463.07 crore, adding Rs 228.57 crore.

Of the Rs 1,291.94 crore increase in revenue from the two categories, IML accounted for about 82 per cent, while beer contributed 18 per cent.

Distillers question tax fairness

CIABC argues that the figures expose a mismatch between volume growth and revenue contribution. It contends that higher IML collections, despite near-stagnant volumes, indicate that revenue gains are being driven largely by higher tax realisation rather than market expansion.

The association has warned that a sustained increase in the tax burden on mass-market liquor could squeeze consumers and eventually constrain demand. It has called for a more balanced excise framework that ensures equitable taxation across beverage categories.

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“The objective of alcohol taxation should be responsible regulation — not picking winners within the alcohol industry. No category should receive an advantage that makes alcohol so inexpensive that it encourages greater consumption. Nor should taxation or government messaging implicitly endorse one alcoholic beverage over another. A credible framework must consider total ethanol intake, actual consumption volumes, frequency of drinking, affordability, accessibility and consumer behaviour,” said CIABC DG Anant S Iyer.

Brewers defend AIB framework

Brewers Association of India (BAI), however, has backed Karnataka’s policy, arguing that alcohol-content-based taxation can encourage consumers to choose beverages with lower alcohol strength while supporting government revenues.

The debate centres on whether lower alcohol by volume (ABV) should translate into a tax advantage.

“Alcohol content-based tax is the gold standard of alcohol taxation. It is followed widely all over the world and recommended by the World Health Organization (WHO) as a tool to reduce harmful use of alcohol. However, the rate of taxation needs to hit the sweet-spot to optimise the economic goal of maximising revenues and public health goals of encouraging milder alcoholic beverages, and the Karnataka Government seems to have done that very well,” said BAI DG Vinod Giri.

CIABC, however, maintains that beer should not automatically be considered safer simply because it has a lower alcohol concentration. It argues that the quantity of pure alcohol consumed, drinking frequency and consumption patterns matter more than the beverage category alone. A 255 ml serving of beer at 5 per cent ABV contains approximately the same amount of pure alcohol as a 30 ml serving of spirits at 42.8 per cent ABV.

"No type of alcohol is inherently safer, lighter or better than another. What matters is how much alcohol is consumed and the consumer’s drinking pattern, not the type of alcohol consumed," said Iyer.

Other states watching closely

The dispute comes as Karnataka’s experiment draws attention from other states considering changes to alcohol taxation. The AIB framework replaced the earlier excise structure with a system linked to alcohol content, alongside a revised slab structure. Its impact on product pricing and consumer choices has differed across categories.

While the latest figures show beer gaining volume share and IML generating most incremental revenue, they do not establish that the tax change alone caused these trends or demonstrate whether overall alcohol consumption and alcohol-related harm have increased or declined.

For Karnataka, the challenge is to balance revenue growth, consumer affordability and public-health objectives. For the industry, the stakes are equally significant: whether the new regime creates a level playing field or shifts the competitive advantage towards one category of alcoholic beverages.