The federal government is set to introduce a carbon levy of Rs. 2.5 per litre on petrol and diesel in the upcoming fiscal year 2025-26, aiming to raise approximately Rs. 45 billion in revenue. Sources within the Finance Division confirmed that the new tax will be implemented alongside the existing petroleum levy and will not require separate legislation, as it will be incorporated into current budgetary provisions.
The carbon levy will not apply to kerosene and light diesel oil. However, in a phased approach, the levy is expected to double to Rs. 5 per litre in fiscal year 2026-27, which could generate up to Rs. 90 billion. The revenue collected through this initiative will be directed towards green budgeting projects, as the government attempts to align fiscal planning with environmental sustainability.
This move follows the conclusion of key negotiations with the International Monetary Fund (IMF) concerning the FY26 budget, suggesting that the carbon levy may be part of broader fiscal reforms agreed with the IMF.
While the levy is aimed at supporting eco-friendly programs, its implementation could result in an increase in fuel prices, putting additional financial pressure on consumers already affected by rising inflation. As the budget announcement approaches, stakeholders are closely monitoring the potential impact of this new taxation policy on both fuel costs and the overall economy.
