ISLAMABAD: Under an iron-clad commitment with the International Monetary Fund (IMF), the government has announced imposition of Rs77 per litre petroleum levy and Rs5 per litre carbon levy on furnace oil and Rs2.5 per litre charge on petrol and diesel from July 1.

In a summary to the federal cabinet, the Ministry of Energy (Petroleum Division) has sought its immediate approval to meet a deadline with the IMF for its inclusion in the Finance Bill 2025-26 and passage by the parliament before June 30. The finance minister has already announced this in his budget speech.

“Under the ongoing IMF programme for Resilience and Sustainability Financing (RSF), the government has agreed for the imposition of the carbon levy on petrol, diesel and furnace oil along with the imposition of petroleum levy (PL) on furnace oil”, reported the secretary petroleum to the cabinet.

He said that under the reform measure (RM3) of the RSF for implementation deadline, the carbon levy has to be legally in place by the end of June. “This will include supplementary carbon levy levied through the PDL (PL) on gasoline and diesel of Rs5 per litre, which will be phased in over two years,” starting with Rs2.5 per litre with effect from July 1.

“As part of this reform, fuel oil will be added to the PDL (PL), with the base and supplementary rate applicable to it. The scope, phasing and level of the supplementary carbon levy will be legislated through the FY26 Finance Act. Future Finance Acts will be able to raise the carbon levy beyond this initial rate as required.”

Accordingly, proposed amendments to the Petro­leum Products (Petroleum Levy) Ordinance 1961 have been incorporated into the draft Finance Bill 2025-26. The draft amendments, inter-alia, provide that there shall be a carbon levy at the rate of Rs2.5/litre on motor spirit [petrol] and high-speed diesel for FY26, which shall be enhanced to Rs5/litre for FY27.

In addition, the carbon levy on furnace oil shall be levied at the rate of Rs2.5/litre (Rs2,665 per tonne) for 2025-26, which shall be enhanced to Rs5/litre for 2026-27, in addition to the petroleum levy at the rate notified by federal government.

“During negotiations with the IMF, it has been agreed that the petroleum levy at the rate of Rs77 per litre (Rs82,077 per metric tonne) will be imposed on furnace oil w.e.f July 1, 2025, upon enactment of the amendments in the PL Ordinance 1961 through Finance Act 2025-26,” read the summary.

Under the amended PL Ordinance 1961, the federal government has been authorised to determine and notify the rates of petroleum levy. “Principle and rates for imposition of both carbon levy and PDL have been finalised with IMF both by Finance Division and Pet­roleum Division jointly,” the Petroleum Division said.

Under the RSF arrangement, the IMF has approved Pakistan’s access to $1.4bn funding (49.2pc of quota) in addition to augmenting $7bn Extended Fund Facility to reduce Pakistan’s balance of payments stability risks stemming from climate vulnerabilities.

Reform measures under the RSF required Pakistan to prioritise resilience to natural disasters and strengthen public investment processes at all levels of government, make the use of scarce water resources more efficient, including through better pricing, strengthen coordination of natural disaster response and financing between federal and provincial governments and improve the information architecture, for and disclosure of, climate-related risks by banks and corporate.

Published in Dawn, June 14th, 2025