Petrol, Diesel May Become Costlier in Budget 2025-26

ISLAMABAD – Petrol and diesel prices in Pakistan could see a significant hike in the upcoming 2025-26 federal budget, as the International Monetary Fund (IMF) urges the government to introduce a carbon levy on fossil fuel products, sources revealed on Tuesday.

During ongoing budget discussions, the IMF has proposed a carbon levy on petrol, diesel, and vehicles powered by internal combustion engines, aimed at supporting climate-friendly alternatives.

According to sources familiar with the matter, the IMF has made it clear that if a direct levy on fuels is not imposed, the government should allocate an annual subsidy of Rs25 billion to boost electric vehicle adoption.

The IMF’s recommendations include applying the carbon levy to all vehicles with engine capacities over 850 cc, covering both imported and locally assembled petrol and diesel cars. The move is expected to discourage reliance on conventional vehicles while encouraging a shift to cleaner transportation.

The international lender estimates that such a levy could generate approximately Rs25 billion per year. This amount, it suggests, should be used to subsidise electric motorcycles and rickshaws, making eco-friendly transport options more accessible to the public.

The proposed carbon levy aligns with Pakistan’s broader goals for climate action and sustainable development. However, it could also impact fuel prices and vehicle costs, potentially adding to inflationary pressures in the short term.