How A Karnataka Tax Reform Turned Into A Beer Boom For United Breweries

United Breweries has credited Karnataka's shift to an alcohol-content-based tax structure for turning the state into one of its fastest-growing markets, with beer category growth touching 50% in some months during the June quarter.

Karnataka became the first state in India to move away from taxing liquor by volume, switching instead to a system that links excise duty directly to a drink's alcohol-by-volume percentage. The new structure, which took effect from May 2026 according to the state excise department, taxes higher-alcohol beverages more heavily while beer, wine and ready-to-drink drinks face relatively lower duty.

The reform was accompanied by a wider deregulation of retail pricing, allowing manufacturers to set their own rates rather than have them fixed by the government. It stems from recommendations by the KP Krishnan-led Resource Mobilisation Committee and was announced by Chief Minister Siddaramaiah in the state's 2026-27 budget, with Karnataka targeting Rs 45,000 crore in excise revenue for the year.

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Chief executive Vivek Gupta called the policy shift a "revolutionary move" during the company's Q1 FY27 earnings call, adding that similar reforms in Maharashtra last year had pushed category growth there above 20%, while retail privatisation in Jharkhand had also expanded market size.

Beer sales in Karnataka have picked up in Q1, courtesy a tax change.
Photo Credit: NDTV Profit

Karnataka's reforms only took effect in the second half of the quarter, chief financial officer Jorn Kersten said, meaning the state's full impact has yet to show up in UBL's numbers. The company's two Karnataka breweries are now running close to capacity as a result.

Gupta said UBL was in early conversations with other state governments exploring similar models, though he stopped short of confirming details. He struck a cautious note on timing but said the momentum could build further through the year.

Punjab: brewery closure, contract shift

UBL closed its Punjab brewery during the quarter and moved production in the state to a partnership with AB InBev, part of a wider network redesign the company had committed to before the cost shock from the Middle East conflict hit margins. Gupta described the closure as a difficult call but said the company chose to stick with the plan rather than delay it. The transition is now complete.

Haryana: pulling back on trade spend

Haryana emerged as a laggard state after UBL cut trade discounts there, a move that dented volumes. Gupta said the state's beer prices routinely run above MRP at retail, making further discount funding from the company unviable. UBL is now working with Haryana retailers on a joint business plan and expects additional capacity in the state over the coming months to reduce reliance on short-term volume swings.

Kersten confirmed that supply from contract brewers had grown faster than overall volumes during the quarter, adding roughly four percentage points of drag on reported revenue growth even as underlying price-mix growth held at 4%.

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