New Carbon Levy Imposed on Petroleum Products in Pakistan

The Pakistani government has introduced a new tax called “Carbon Levy” on the sales of petrol, diesel, and furnace oil. According to budget documents released on Tuesday, this levy will initially be set at Rs2.5 per litre for the fiscal year 2025-26 and will then increase to Rs5 per litre in the fiscal year 2026-27.

This new tax is slated to take effect from July 1, 2025. It will be applied in addition to the existing petroleum development levy (PDL), which stands at Rs78 per litre on petrol and Rs77 per litre on diesel. This will likely result in higher prices for petroleum products.

During the budget announcement for 2025-26, Finance Minister Muhammad Aurangzeb also declared the imposition of a Petroleum Levy on the sale of furnace oil (FO). The specific rate for this levy will be determined and notified by the Federal Government periodically.

Addressing the National Assembly, Aurangzeb explained that the Carbon Levy aims to discourage the consumption of fossil fuels. It is also intended to generate funds for initiatives related to climate change and green energy.

Topline Securities observed that the government has imposed PDL on furnace oil, fulfilling a commitment to the IMF. However, the exact rate has not yet been disclosed.

Recent reports indicate that the government may also increase the PDL on petroleum products to Rs100 per litre in the coming fiscal year (FY26). This move aligns with new agreements established with the International Monetary Fund (IMF) under the ongoing $7 billion Extended Fund Facility (EFF), which spans 37 months.

Currently, diesel is priced at Rs254.64 per litre, and petrol is at Rs253.63 per litre in Pakistan, effective from June 1, 2025. The government adjusts petroleum product prices twice a month, based on trends in global oil prices.