Pakistan opposes IMF proposal for carbon levy on petroleum, coal, and vehicles

Islamabad: Pakistan has opposed a proposal by the International Monetary Fund (IMF) to impose a carbon levy on petroleum products, coal, and vehicles, citing concerns over fund utilization and provincial authority over coal taxation.

According to sources, the IMF delegation, currently in Pakistan for an economic review under the $7 billion loan program, suggested raising the petroleum levy from Rs60 per litre to Rs70 over three years, with an initial increase of Rs3 per litre in the first year. The proposed revenue would be allocated for green energy projects in the country.

The IMF also recommended raising the federal excise duty (FED) on cars with internal combustion engines, branding it as a carbon levy to encourage environmentally friendly alternatives.

The proposal was discussed in meetings between IMF officials and representatives from the Ministry of Petroleum, Ministry of Finance, Ministry of Climate Change, Ministry of Industries, and the Federal Board of Revenue (FBR) on Friday.

Pakistani officials expressed reservations, particularly regarding the utilization of collected funds and the cooperation framework between federal and provincial governments. Officials highlighted that coal taxation falls under provincial jurisdiction, making the carbon levy on coal a complex issue.

However, the FBR supported the proposal to increase FED on cars, despite the already heavy taxation on vehicles in Pakistan. Currently, taxes on new cars range from 36% to 45% of the vehicle price, including advance income tax, sales tax, FED, and registration fees.

Pakistan’s rejection of the carbon levy proposal reflects concerns over tax burden on consumers, provincial autonomy, and fund allocation. While the government aims to promote green energy, it remains cautious about additional taxation amid economic challenges.