Senate Panel Rejects ‘Unconstitutional’ Carbon Levy on Petrol, Diesel

The Senate Standing Committee on Finance on Thursday decisively rejected the federal government’s proposal in the Finance Bill 2025 to impose a carbon levy on petroleum products. Lawmakers called it unconstitutional and a big burden on the general public if imposed. During the meeting, four members of the committee voted against the carbon levy, while only two supported it. Senator Sherry Rehman argued that the carbon levy cannot be introduced through the Finance Bill and must instead be legislated through a separate act of Parliament. She said carbon taxes typically target specific polluting industries, while the proposed levy would directly impact the general public. Senator Mohsin Aziz warned that any attempt to impose the levy would amount to contempt of court. Here, he was referring to a recent Supreme Court verdict in the Zafar Iqbal Jhagra case which ruled out such levies being introduced through finance bills. Another Senator called the levy contradictory to the government’s climate change agenda. He argued that the government is prioritizing climate change but collecting money under this levy and spending it on roads. Senator Abdul Qadir complained that such a levy would only worsen inflation. He also raised concerns related to the situation between Iran and Israel as a contributing factor to rising petroleum prices. The Minister of State for Finance Bilal Ahmed Kayani defended the government’s decision but failed to directly address the constitutionality of the carbon levy. Officials from the Power Division revealed that the carbon levy is part of Pakistan’s commitments under the IMF’s Resilience and Sustainability Facility (RSF) and is expected to generate Rs. 45 billion in annual revenue. They added that the funds would be allocated toward green economy initiatives and that the levy would initially be set at Rs. 2.5 per litre. Despite this clarification, Senator Saleem Mandviwala questioned where the funds would actually be spent and demanded full disclosure of the RSF conditions agreed with the IMF. Senator Sherry Rehman reiterated that the carbon levy must not be imposed through the Finance Bill.