Carbon levy likely to be doubled in FY27 budget

April 6, 2026 (MLN):  The federal government is preparing to significantly increase its carbon taxation framework, with plans to double the Carbon Levy on petroleum products from Rs2.5 to Rs5 per litre in the upcoming fiscal year 2026–27, according to sources familiar with the proposed Finance Bill told Mettis Global.

The move follows last year’s introduction of the Carbon Levy in the Budget 2025–26, where authorities imposed a Rs2.5 per litre charge on key petroleum products including Motor Spirit (petrol), High-Speed Diesel, and Furnace Oil.

The levy was positioned as both a revenue-generating measure and a step toward addressing environmental challenges linked to carbon emissions.

Under the proposed changes, the Carbon Levy will rise uniformly to Rs5 per litre starting next fiscal year, effectively doubling the burden on emissions-heavy fuels.

The Carbon Levy remains separate from the existing Petroleum Levy, reinforcing a dual taxation structure aimed specifically at discouraging carbon-intensive fuel consumption while maintaining traditional revenue streams from petroleum products.

This indicate that the increase will be formally presented as part of the new Finance Bill, signaling continuity in the government’s fiscal strategy.

The policy reflects a broader shift toward integrating environmental considerations into economic planning, aligning Pakistan with global trends where carbon pricing mechanisms are increasingly used to curb emissions and promote cleaner energy alternatives.

However, the  hike may also have inflationary implications, as higher fuel costs typically cascade through transportation and production sectors.

With the Finance Bill 2026–27 expected to be tabled soon, the proposed increase is likely to spark debate over its economic impact and environmental effectiveness.

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