In a move aimed at reducing carbon emissions and promoting cleaner energy, the federal government has announced a Rs2.5 per litre carbon levy on petrol, diesel, and furnace oil. The new tax will take effect in the 2025–26 federal budget and will increase to Rs5 per litre in the following fiscal year, 2026–27.
The levy is part of a broader strategy to encourage the use of electric vehicles (EVs) and reduce reliance on fossil fuels. Alongside the fuel levy, the government is proposing an additional charge on petrol and diesel vehicles. This levy, based on engine capacity, will apply to both the sale and import of traditional fuel-powered vehicles.
Finance Minister Muhammad Aurangzeb shared details of the new budget measures, which include:
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A 10% surcharge on external loan repayments, with the flexibility for the government to raise the rate if needed.
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Customs reforms to streamline enforcement and reduce smuggling.
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Stricter controls on untaxed goods, including the seizure of products without tax stamps or barcodes.
To combat the smuggling of non-duty paid cigarettes, provincial authorities will be brought in to assist with enforcement under the new tax framework.
The budget also places a strong emphasis on the country’s electric vehicle policy. The government plans to promote the use of electric motorcycles and rickshaws, positioning EVs as a priority over petrol and diesel vehicles in the coming years.
