Karnataka draws a fifth of its revenues from liquor taxes

Liquor taxes account for a fifth of own tax revenues in Karnataka

Karnataka is one of the few large states in the country which draws nearly 20 percent of its revenues from liquor taxes.

With expenditures expected to outpace revenues in the current fiscal year, it is unsurprising that the chief minister has asked his officials to curb liquor imports from neighbouring Goa.

A Moneycontrol analysis found that in FY25, Karnataka is expected to earn 20.3 percent of its tax revenue from excise duty levied on alcohol. The state will be among the top five states in terms of the ratio of liquor revenues to own tax revenue, bested only by Jharkhand, where alcohol taxes will contribute 26.7 percent of own tax revenues, UP, Chhattisgarh and West Bengal.

The national average from large states in FY25 will likely be much lower at 13.7 percent.

Data further indicates that Karnataka’s dependence on alcohol as a revenue source has held steady over the last two decades as well.

Meanwhile, liquor's contribution to the overall states’ budget has increased. In neighbouring Kerala and Tamil Nadu, where it has reduced, liquor dependence is much lower, with excise duty contributing 3.7 percent and 6.3 percent of the states’ respective tax revenues.

The duty evasion issue becomes more important given the fiscal slippage the state is expected to witness.

Fiscal deficit is likely to be 3 percent, just at the limit set by the finance commission, and 0.3 percentage points higher than the previous year.

While total expenditure is set to rise by 17 percent, net receipts will lag at 16 percent. Revenue expenditures have increased much faster at 21 percent.