Energy Ministry Proposes New Fuel Levies

The Ministry of Energy (Petroleum Division) has put forward a proposal to amend the Petroleum Products (Petroleum Levy) Ordinance of 1961. The suggested changes involve introducing new levies on fuels, namely a Carbon Levy and a Petroleum Levy (PL) on furnace oil, petrol, and diesel.

According to a summary prepared by the ministry for cabinet consideration, the government has agreed to introduce a Carbon Levy on petrol, diesel, and furnace oil, along with a Petroleum Levy (PL) on furnace oil, as part of the ongoing International Monetary Fund (IMF) program for Resilience and Sustainability Financing (RSF).

This includes a supplementary carbon levy applied through the PDL on gasoline and diesel at a rate of Rs5 per liter, which will be implemented gradually over two years. Fuel oil will also be subject to the PDL (PL), with a base and supplementary rate.

The extent, phasing, and amount of the supplementary carbon levy will be formalized through the Finance Act of FY26. Future Finance Acts will have the ability to increase the carbon levy beyond the initial rate as needed.

The Ministry of Energy has indicated that the proposed revisions to the Petroleum Products (Petroleum Levy) Ordinance, 1961, have been integrated into the draft Finance Bill for 2025-26.

The draft amendments stipulate the implementation of a Carbon Levy at a rate of Rs.2.5 per liter on Motor Spirit and High-Speed Diesel for FY 2025-26, escalating to Rs5 per liter for FY 2026-27.

For Furnace Oil, the Carbon Levy will be Rs2.5 per liter (Rs2,665 per MT) for FY 2025-26, which will then increase to Rs5 per liter for FY 2026-27, in addition to the Petroleum Levy at the rate specified by the Federal Government.

As per the summary, the government has agreed with the IMF to impose a Petroleum Levy of Rs77 per liter (Rs82,077 per MT) on Furnace Oil, effective from July 1, 2025, contingent upon enacting the amendments to the PL Ordinance 1961 through the Finance Act 2025-26.

The amended PL Ordinance, 1961, empowers the federal government to set and announce the rates of the Petroleum Levy.

The summary stated that proposals for imposing both the Carbon Levy and Petroleum Levy at the specified rates are being submitted for the Cabinet’s consideration and approval.

The principles and rates for implementing both the Carbon Levy and PDL have been jointly finalized with the IMF by the Finance Division and the Petroleum Division.