Petroleum products: Senate body rejects Rs2.50/litre carbon levy
ISLAMABAD: The Senate Standing Committee on Finance and Revenue with majority vote rejected the carbon levy of Rs2.5 per litre on petroleum products proposed in the Finance Bill 2025-26, from which the government has projected to generate a revenue of Rs45 billion.
Under the ongoing International Monetary Fund (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 of Rs5 per litre, which will be phased in over two years.
The Federal Board of Revenue (FBR) chairman said that revenue from carbon levy would be increased to Rs90 billion in 2026-27. The levy is a condition of the IMF's RSF programme of $ 1.4 billion. This levy will be imposed on petrol, diesel and furnace oil.
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The parliamentary panel chaired by Senator Saleem Mandviwalla, observed that carbon levy could not implemented through finance bill. The committee observed that the way carbon levy is going to be impose was not correct and rather it should come as carbon tax. The committee also underlined that Petroleum Division has proposed Rs2.5 carbon levy without providing sustainable 'Emission Reduction' plan for the environment.
Senator Sherry Rehman opposing the levy said that there is difference between the carbon levy and carbon tax. 'There is no place in the world where carbon levy been imposed but carbon tax used to be enforced'. Sherry Rehman said that carbon taxes been enforced over specific industries with an aim. 'You are imposing all types of levies and that also directly over the public users,' she added.
'It requires an act of law and not enforced with the finance bill,' she added. Senator Mohsin Aziz said that the Supreme Court has restrained imposition of carbon levy in Zafar Iqbal Jhagra case. 'It will be contempt of the court if carbon levy is imposed', he added.
After debate the carbon levy was rejected by the government with majority vote. The FBR chairman said that tax on hybrid vehicles is not being increased.
The committee also raised questions on the proposed amendment in regulation of Generation, Transmission and Distribution of Electric Power Act 1997 agreed with IMF.
According to the proposed amendment, the Debt Service Surcharge (DSS) is currently set at 10 percent of the NEPRA-determined revenue requirement, adjusted each year at the time of annual rebasing, per current practice. In the event that DSS revenues fall short of the annual payment requirement, the DSS will be increased to make up for the shortfall and calibrated per any anticipated future shortfalls in the succeeding year. To facilitate this, NEPRA has proposed to adopt legislation to remove the 10 percent.
Discussing the power sector initiative for payment of circular debt through refinancing, NEPRA officials stated that, as of now, Rs3.23 per unit is being charged to consumers.
However, NEPRA proposed removal of 10 percent cap limit, as it would help in obtaining necessary refinancing needed for the payment of power sector's circular debt. However, the committee objected while saying that authorities concerned wanted blanket power to increase DSS, which would result in power tariff increase for consumers.
The committee decided to call minister and secretary for power to brief the committee. Chairman committee said that they need a briefing on the circular debt repayment plan. If permission is given, you will increase this rate with proposed blanket power and if there is no need to increase it, then why is permission being sought, he asked.
The joint secretary took the stand that this will not happen and consumers will continue to be charged Rs3.23 per unit. Senator Sherry Rehman opposed it and said that this cannot be allowed.
The joint secretary said that there is a 10 percent service surcharge limit and IMF has demanded that the limit on debt service surcharge be removed. The government will use the surcharge to pay off a debt of Rs1,275 billion. The surcharge is used to pay interest on the circular debt. Currently, a debt service surcharge of Rs3.23 per unit is being charged from consumers, he added.
Senator Shibli Faraz said that if the levy money is being spent on roads, what would happen to combating climate change.
The prime minister says that the funds will be spent on the roads of Balochistan. The government should first determine its priorities, he added.
The committee took exception to certain clauses of 'Public Finance Management Act' allowing autonomous bodies to retain money and submit surplus profit into Public account. The committee called for rationalisation of these clauses, as it would only result in financial irregularities.
The committee was briefed on the exemptions provided to businesses located in Khyber Pakhtunkhwa and newly-merged districts. It was informed that the exemptions for cinema operators have been limited to 2030, granting five years exemptions from the date of operations. However, the FBR has extended the withholding exemption for businesses existing in erstwhile FATA till 2026.
Highlighting the significance of newly introduced 'Digital Presence Proceeds Act', the FBR chairman stated that the tax has been imposed on digital platforms providing services within the country without retaining physical footprint.
The FBR chairman said that a sunset clauses for SEZs and STZs are included in the finance bill. He said that IMF was stressing to limit this tax exemptions for SEZs and STZs to 2027, however after hectic efforts the deadline was extended to 2035. The committee recommended the proposal. The committee also gave its nod to the budgetary proposals of tax on pension income exceeding Rs10 million for individuals under the age of 70.
The committee recommended a proposal of the Federation of All Pakistan Universities Academic Staff Associations (FAPUASA) for continuation of 25 percent tax rebate. FAPUASA representatives strongly asserted that this rebate is an essential incentive to retain top academic talent, attract young scholars to the profession, and prevent brain drain from Pakistan's universities.
Removing this rebate, they argued, would undermine academic motivation and weaken the research capacity of the country.
Copyright Business Recorder, 2025
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