Govt to implement Rs77 petroleum levy, Rs5 carbon levy on fuel from July 1

The federal government has confirmed the imposition of a Rs77 per litre petroleum levy (PL) and Rs5 per litre carbon levy on furnace oil, petrol, and diesel starting July 1, 2025, in line with an agreement under the International Monetary Fund (IMF) Resilience and Sustainability Financing (RSF) program.

According to a news report, the Ministry of Energy (Petroleum Division) has submitted a summary to the federal cabinet, requesting immediate approval for the new levies to meet the IMF’s deadline for inclusion in the Finance Bill 2025-26, which is set to be passed by parliament before June 30. The finance minister had already outlined these measures in his budget speech.

The carbon levy on petrol, diesel, and furnace oil is part of the RSF reform measures and must be legislated by June 30. The proposed Rs2.5 per litre carbon levy on petrol and diesel will increase to Rs5 per litre in the following fiscal year. Furnace oil will also face the same levy, starting at Rs2.5 per litre in FY26, with an increase to Rs5 in FY27.

The summary also indicates that the Rs77 per litre petroleum levy on furnace oil will be enforced starting July 1, 2025, once the amendments to the Petroleum Levy Ordinance 1961 are enacted. 

The government has secured approval from the IMF for these new levies, which are aimed at enhancing Pakistan’s climate resilience and addressing balance of payments challenges. As part of Pakistan’s RSF arrangement, the IMF has approved $1.4 billion in additional funding, along with a $7 billion extension to Pakistan’s current Extended Fund Facility, to mitigate risks from climate change and strengthen public investment processes.

On the other hand, the oil industry has voiced strong opposition to imposing carbon and petroleum levies, arguing that the move could exacerbate financial pressures on the sector, which is already grappling with the issue of sales tax exemptions on petroleum products.

Industry officials have expressed concerns that the new levies will make it impossible to sell furnace oil locally. “The government will lose all sales tax revenue currently being collected on local sales,” they said.

The government had previously committed to removing the sales tax exemption on petroleum products in the Finance Bill 2025 to support refineries and oil marketing companies. However, it failed to follow through on this promise, raising concerns among industry stakeholders.