Senate panel rejects proposed Rs2.5/litre Carbon Levy on petroleum

June 19, 2025 (MLN): Pakistan’s Senate Standing Committee on Finance has rejected a government proposal to impose a Rs2.5 per liter carbon levy on petroleum products, dealing a blow to fiscal plans aimed at expanding non-tax revenues.

According to sources in the Finance Ministry, the majority of committee members opposed the levy during deliberations, citing concerns over its potential inflationary impact and timing, especially as fuel prices remain elevated for consumers and businesses alike.

The levy, proposed by Finance Minister Muhammad Aurangzeb during his budget speech in the National Assembly, was to be applied on petrol, high-speed diesel, and furnace oil, with a plan to double the rate to Rs5 per liter by FY2026–27.

The measure was expected to generate Rs48 billion in revenue in the upcoming fiscal year.

Officials had positioned the levy as a dual-purpose initiative aimed at curbing fossil fuel consumption to reduce environmental damage, while also containing the country’s fuel-driven import bill.

The government had also earmarked the revenue to support green energy programs, with a focus on boosting investment in alternative fuels and renewable energy sources.

With the Senate panel's rejection, the proposal now faces political and procedural uncertainty, even as the government looks to meet fiscal targets and climate-linked funding goals under international frameworks.

The Finance Ministry has not yet indicated whether it plans to revise, defer, or reintroduce the levy in another form during the ongoing budget approval process.

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