PESHAWAR – The International Monetary Fund (IMF) has demanded that Pakistan impose a carbon levy on petrol, diesel, and vehicles with internal combustion engines above 850cc in the upcoming federal budget, sources revealed.
The demand surfaced during ongoing budget negotiations between Pakistan and the IMF in Islamabad.
The IMF insists that Pakistan must either introduce a carbon levy or allocate 25bn rupees annually from the existing petroleum development levy to subsidize electric transport. The IMF has also asked for the application of an 18 percent sales tax on all petrol and diesel vehicles above 850cc, raising the current 12.5 percent tax on smaller vehicles to the same level.
The global lender has urged the government to use the carbon levy proceeds to fund subsidies for electric motorcycles and electric rickshaws. It further pushed for a national strategy that facilitates the purchase of electric motorcycles, rickshaws, and cars over the next five years.
According to the IMF, Pakistan must discourage internal combustion engine (ICE) vehicles, both imported and locally manufactured, by withdrawing existing tax incentives. The IMF also called for the government to ensure that 50 percent of all motorcycles and rickshaws transition to electric over the next five years. Additionally, it wants the share of electric vehicles on roads to reach 30 percent in the same period.
If the government complies, the proposed carbon levy on fuels and high-engine vehicles could generate up to 25bn rupees annually, which the IMF wants redirected to clean transport subsidies.
The IMF’s conditions aim to align Pakistan’s transport policy with climate goals while reducing reliance on fossil fuels. Policymakers are reviewing the proposal as they finalize the federal budget.
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