CIABC, BAI differ on alcohol-based duty reforms announced in Karnataka Budget

New Delhi, Mar 7 (PTI) The alcoholic beverage industry has offered mixed reactions to Karnataka's sweeping excise reforms, with Indian Made Foreign Liquor (IMFL) makers expressing caution on the proposed Alcohol-in-Beverage (AIB) based duty structure, while beer manufacturers hailed the move as a landmark step.

CIABC, which represents IMFL players and some wine manufacturers, said any policy favouring beer will sooner or later lead to lower sales, while the beer makers' body, BAI, hailed the proposals and said there is a fundamental shift in state philosophy away from a revenue-maximisation obsession.

Confederation of Indian Alcoholic Beverage Companies (CIABC) fears a price increase of IMFL, which will drop sales, and said the policy favours the beer industry, which has lower alcohol content.

BAI (Brewers' Association of India) said the principle of taxing alcohol in the beverage and not the water is the WHO-recommended gold standard for alcohol taxation and is widely followed in most progressive and developed countries in the world.

On Friday, Karnataka Chief Minister Siddaramaiah announced sweeping reforms in the state's liquor taxation and regulatory framework, including the introduction of a new alcohol-based duty structure, deregulation of price fixation and technology-driven monitoring systems.

He set an ambitious revenue target of Rs 45,000 crore from the excise sector for 2026-27. Presenting the state budget in the assembly, the chief minister said the government would modernise the state's decades-old excise framework and introduce reforms aimed at improving transparency, compliance and ease of doing business.

The chief minister said Karnataka will adopt a globally recognised taxation system that links excise duty to the alcohol content of beverages.

CIABC said the Karnataka government has reduced the number of slabs while giving the freedom to increase basic price within the slab.

However, "if the duty slab rationalisation is accompanied by an increase in duty in slabs 1 to 4, which constitutes 85-90 per cent approx of spirits sales in Karnataka and is the primary driver for the excise revenue collection, then such an increase will lead to a further drop in sales in these slabs and adversely impact revenue in the medium term." CIABC Director General Anant S Iyer said how the mechanism of alcohol-based duty structure is going to evolve is still "unclear" and they await further details.

"Also, any policy favouring beer will sooner or later lead to lower sales of IMFL, wherein the per case revenue is 4-5 times higher than beer, eventually impacting total excise revenue," he said, adding, "It seems the state government has failed to take note of the demands and suggestions of the wine industry for which separate representations were submitted. While there is mention of distilleries and breweries, it seems the state government has overlooked wineries." While BAI said it is "watershed moment" for excise policy reforms in the country and AIB taxation targets the alcohol content, which is the primary source of negative externalities, which is a "fundamental change in state philosophy to move away from revenue maximisation obsession to a robust optimisation of revenue maximisation and public health outcomes".

"It is widely followed all over the world now and is encouraged by health bodies such as the WHO. By adopting the need to optimise revenue and public health goals of moderation, the government has reinforced the state's image as a progressive reformist leader in country," BAI Director General Vinod Giri said.

BAI represents leading beer markers United Breweries, ABInBev, and Carlsberg, which together account for 85 per cent of the beer sold in India.

"The budget also accepts alcobev sector as an integral part of industrial ecosystem and has several steps to improve Ease of Doing Business such as full deregulation of government-administered price fixation and simplification of the taxation framework," said BAI.

Another association ISWAI welcomed the Karnataka government's move to free up pricing and said market-determined pricing, similar to other FMCG sectors, allows market conditions to define prices in a way that benefits consumers, government and suppliers alike.

"While it is premature to comment on the AIB-based excise framework at this stage, as the final tax structure is yet to be published, the rationalisation of slabs from 16 to 8 is a welcome step that will provide brands greater headroom to set appropriate pricing for consumers," ISWAI CEO Sanjit Padhi said.

ISWAI (International Spirits and Wines Association of India) represents the imported premium portfolio of spirits and wine brands in India.

"These reforms have the potential to influence investment, portfolio expansion and pricing strategies for spirits makers. Investment is driven by market size, profitability, ease of doing business and policy stability. With nearly 93 per cent of the market currently concentrated at the lower end, the right tax structure could accelerate premiumisation and encourage consumers to move up the price ladder, unlocking greater investment across categories," he said. PTI KRH TRB