Govt imposes Rs2.5/litre carbon levy on petroleum

June 10, 2025 (MLN): In a bid to boost revenue and address environmental concerns, the federal government has imposed a new Carbon Levy of Rs2.5 per liter on petroleum products in the Budget 2025–26, as outlined in the Finance Bill 2025.

The levy applies to Motor Spirit, High-Speed Diesel, and Furnace Oil, and is set to double to Rs5 per liter in the next fiscal year.

The newly introduced Carbon Levy is in addition to the existing Petroleum Levy and specifically targets emissions-heavy fuels.

According to the bill, the Furnace Oil levy is Rs2.5 per liter (equivalent to Rs2,665 per metric ton) for FY 2025–26, rising to Rs5 per liter in FY 2026–27.

The amendment also formally expands the title of the 1961 ordinance to include both “Petroleum Levy” and “Carbon Levy,” reflecting the dual structure of these charges.

These changes signify a strategic fiscal and environmental shift, as the government seeks not only to enhance its revenue streams but also to align national policy with global trends in carbon taxation.

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