Government Plans Rs. 5/Litre Carbon Levy on Petrol and Diesel in FY2025-26 Budget

Islamabad, June 2025: The federal government is preparing to introduce a new carbon levy of Rs. 2.5 per litre on petrol and diesel as part of the upcoming fiscal year 2025-26 budget. This step is aimed at increasing state revenue while promoting environmentally sustainable policies.

This levy will be in addition to the existing petroleum levy and is projected to generate nearly Rs. 45 billion in the next fiscal year. The revenue will be directed toward funding green development initiatives, climate-related infrastructure, and sustainability programs.

Starting in FY2026-27, the government intends to raise the levy to Rs. 5 per litre, which could generate around Rs. 90 billion annually. This gradual increase is designed to help both consumers and businesses adapt without a sudden impact on prices.

Kerosene and light diesel oil are exempted from this tax to avoid burdening low-income households and small rural businesses that rely heavily on these fuels.

The proposed levy will be implemented under the existing tax legislation, eliminating the need for new laws. This approach is expected to make the rollout faster and more efficient, supporting the country’s broader shift toward green budgeting without legal delays.

As part of its fiscal reform plan, the government is also reviewing how these funds will be monitored and spent to ensure transparency. Details of these programs will likely be announced alongside the formal budget speech.

Conclusion: The carbon levy signals a strategic shift in Pakistan’s fiscal and environmental planning. If implemented effectively, it could play a key role in financing green projects while gradually transforming the country’s energy economy.