Govt to Charge Carbon Levy on Furnace Oil
Staff Report
Islamabad: The government has committed to International Monetary Fund (IMF) to impose carbon levy on furnace oil in addition to charging it on petrol and diesel.
Petroleum division in a summary submitted to cabinet said that government would charge carbon Levy at the rate of Rs. 2.5/liter
on Motor Spirit and High Speed Diesel for FY 2025-26, which shall be enhanced to Rs. 5/liter for FY 2026-27.
The Carbon Levy on Furnace Oil shall be levied at the rate of Rs. 2.5/liter (Rs. 2,665/MT) for FY 2025-26, which shall be enhanced to Rs. 5/liter for FY 2026-27 in addition to the Petroleum Levy at the rate notified by Federal Government.
During negotiations with the IMF, it has been agreed that the Petroleum Levy at the rate of Rs. 77/liter (Rs. 82,077/MT) will be imposed on Furnace Oil w.e.f 1st July 2025, upon enactment of the amendments in the PL Ordinance 1961 through Finance Act 2025-26.
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Under the amended PL Ordinance, 1961, Federal Government has been authorized to determine and notify the rates of Petroleum Levy.
Under the ongoing IMF programme for Resilience and Sustainability Financing (RSF), Government has agreed for imposition of Carbon Levy on petrol, diesel and furnace oil along with imposition of Petroleum Levy (PL) on furnace oil. Relevant extract is reproduced below; “RM 3 (end June 2025) Carbon Levy. This will include supplementary carbon levy levied
through the PDL (PL) on gasoline and diesel of PRS. 5 per liter, which will be phased in over two years. As part of this reform, fuel oil will be added to the PDL (PL), 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”. Accordingly, proposed amendments in the Petroleum Products (Petroleum Levy) Ordinance, 1961 have been incorporated in the draft Finance Bill 2025-26.
The draft amendments, inter-alia, provides that there shall be levied Carbon Levy at the rate of Rs. 2.5/liter
on Motor Spirit and High Speed Diesel for FY 2025-26, which shall be enhanced to Rs. 5/liter for FY 2026-27. The Carbon Levy on Furnace Oil shall be levied at the rate of Rs. 2.5/liter (Rs. 2,665/MT) for FY 2025-26, which shall be enhanced to Rs. 5/liter for FY 2026-27 in addition to the Petroleum Levy at the rate notified by Federal Government.
Under the amended PL Ordinance, 1961, Federal Government has been authorized to determine and notify the rates of Petroleum Levy.
Accordingly proposals for imposition of Carbon Levy and Petroleum Levy at the rate were submitted to cabinet for consideration and approval of the Cabinet.
Principle and rates for imposition of both Carbon Levy and PDL have been finalised with IMF both by Finance Division and Petroleum Division jointly.