The federal government plans to impose Rs. 2.5/liter carbon levy on petroleum products during fiscal year 2025-26, in accordance with requirements of the International Monetary Fund (IMF).
In its staff-level agreement report from May, the IMF had said the country would impose the carbon levy over the next two years on gasoline and diesel products, as well as fuel oil, to disincentivize the use of fossil fuels. It had said the expected inflationary impact of this levy would be counterbalanced by annual Benazir Income Support Program (BISP) cash transfer benefit inflation adjustments.
The carbon levy is a prerequisite for the $1.3 billion Resilience and Sustainability Facility that aims to help implement Pakistan’s 2025-30 New Energy Vehicle (NEV) Policy. The policy targets 30% of all new vehicles by 2030 to be electric vehicles.
According to sources within the Finance Ministry, the government plans to impose Rs. 2.5/liter carbon levy on motor spirit and high-speed diesel for FY2025-26, with an aim to enhance this further to Rs. 5/liter for FY2026-27. Additionally, the government plans to impose Rs. 2/liter carbon levy on furnace oil for FY2025-26 before enhancing it to Rs. 5/liter for FY 2026-27.
The carbon levy would be in addition to the petroleum development levy notified by federal government, currently at nearly Rs. 80/liter on both petrol and high-speed diesel. According to reports, the government plans to raise it to more than Rs. 100/liter from July.
The sources have said the government would impose the carbon levy through amendments to the Petroleum Products (Petroleum Levy) Ordinance, 1961. Earlier this year, the government had amended the legislation to block a Rs. 10/liter reduction in major petroleum products as prices declined in the global market.