Govt moves to levy carbon tax on fuel

ISLAMABAD: The Ministry of Energy (Petroleum Division) has sent a summary to the federal cabinet, seeking approval to amend the Petroleum Products (Petroleum Levy) Ordinance, 1961, to introduce new levies on petrol, diesel, and furnace oil in line with Pakistan’s commitments under the IMF’s Resilience and Sustainability Facility (RSF).

Notably, last month, the Executive Board of the Fund approved the authorities request for an arrangement under the Resilience and Sustainability Facility (RSF), which will support Pakistan’s efforts in building economic resilience to climate vulnerabilities and natural disasters, with access of around $1.4 billion.

Under the proposed amendments to the Ordinance 1961—already incorporated into the draft Finance Bill 2025–26—the government aims to phase in a carbon levy of Rs5 per litre on petrol and diesel over two years, starting with Rs2.5 per litre in FY2025–26, and to apply both carbon and petroleum levies on furnace oil.

The summary states that the petroleum levy on furnace oil will be imposed at Rs77 per litre (Rs82,077/MT) effective July 1, 2025, contingent on the enactment of the amended ordinance through the upcoming Finance Act. A carbon levy of Rs2.5/litre (Rs2,665/MT) on furnace oil will also be introduced in FY26 and doubled in FY27.

The amendments also empower the federal government to determine and notify petroleum levy rates. The carbon and petroleum levy frameworks, including rates and implementation timelines, have been finalized jointly with the IMF by the Finance and Petroleum Divisions.