Finance Ministry Enforces Rs5/Litre Carbon Levy and EV Support by June 2025

The Ministry of Finance has issued a firm directive to pertinent ministries, urging them to enforce the taxation measures stipulated within the Resilience and Sustainability Finance (RSF) accord with the International Monetary Fund (IMF). Central to these measures is the imposition of a Rs5 per litre carbon levy on gasoline and diesel, with a phased rollout planned for completion by June 2025.

According to BR, this carbon levy will be introduced incrementally over two years, commencing with an additional levy integrated into the Petroleum Development Levy (PDL) on fuel. Both gasoline and diesel will be subject to this, alongside a foundational and supplementary rate applied to fuel oil.

The comprehensive structure and final rate of the carbon levy will be cemented through the FY26 Finance Act, with provisions in subsequent Finance Acts permitting further adjustments should the need arise.

Beyond the levy, the government has pledged to foster the uptake of electric vehicles (EVs) by June 2025. Within the FY26 budget legislation, a revenue-neutral mechanism will be established, incorporating subsidies for EVs and an additional tax on internal combustion engine vehicles, harmonised with the proposed National Electric Vehicle Policy (NEVP) for 2025–2030.

Further, the government aims to establish EV charging stations by February 2027. To stimulate private sector involvement, a Viability Gap Funding (VGF) framework will be implemented, providing one-time subsidies and promoting competition via a transparent bidding process.

The Finance Ministry plans to engage with the Asian Development Bank (ADB) or the International Finance Corporation (IFC) to ensure the VGF framework adheres to global best practices, thereby reducing potential risks to the state.

The Finance Ministry has mandated that all relevant ministries adhere strictly to the timelines for these RSF reforms, reinforcing Pakistan’s steadfast obligations to the IMF.