Carbon levy feared to eat into industry finances
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The oil industry has criticised the government's plan to impose carbon and petroleum levies on furnace oil, warning that the move — aimed at meeting IMF's conditions — could further strain finances as the sector is already facing the issue of sales tax exemption on petroleum products.
"We will not be able to sell a litre of furnace oil locally. The government will lose all the sales tax currently being collected on local sales," industry officials told The Express Tribune, adding that there would be zero collection of petroleum levy on furnace oil.
The government had committed to removing the sales tax exemption on petroleum products in the Finance Bill 2025 to rescue refineries and oil marketing companies. However, it did not fulfil the commitment, sparking concerns among industry players.
Now, the government has agreed with the International Monetary Fund (IMF) that it will impose a carbon levy on furnace oil in addition to slapping it on petrol and diesel.
The Petroleum Division, in a summary submitted to the cabinet, said that the government would charge a carbon levy at the rate of Rs2.5 per litre on motor spirit (petrol) and high-speed diesel in fiscal year 2025-26, which would be enhanced to Rs5 per litre in FY 2026-27.
It said that the carbon levy on furnace oil would be Rs2.5 per litre (Rs2,665 per metric ton) for FY26, which would be increased to Rs5 per litre in FY27. This will be in addition to the petroleum levy notified by the federal government.
During negotiations with the IMF, the petroleum ministry informed the cabinet that it had been agreed that petroleum levy at the rate of Rs77 per litre (Rs82,077 per ton) would be imposed on furnace oil with effect from July 2025, following enactment of amendments to the Petroleum Levy Ordinance 1961 through the Finance Act 2025.
Under the amended ordinance, the federal government has been authorised to determine and notify petroleum levy rates.
As part of the ongoing IMF's Resilience and Sustainability Facility (RSF), Pakistan's government has agreed to impose carbon levy on petrol, diesel and furnace oil along with petroleum levy on furnace oil.
The relevant extract says: "RM 3 (end-June 2025) Carbon Levy. This will include supplementary carbon levy levied through the PDL (PL) on gasoline and diesel of Rs5 per litre, which will be phased in over two years. As part of this reform, fuel oil will be added to the PDL, with the base and supplementary rate applicable to it. The scope, phasing and level of the supplementary carbon levy will be legislated through the FY26 Finance Act. Future Finance Acts will be able to raise the carbon levy beyond this initial rate as required."
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