A Carbon Tax is on the cards in the upcoming federal budget 2024-25 as the government considers ways to tackle emissions and reduce dependency on fossil fuels.
The government may seek to levy a carbon levy between Rs. 20-30 per liter.
A carbon levy seems more likely than the IMF’s call for an 18 percent General Sales Tax (GST) on all petroleum products. This move aims to diminish POL demand and other carbon-emitting fuels, reported a national daily.
It bears mentioning that talks on the Carbon Levy came up during the conclusion of the second review of IMF’s $3 billion Standby Arrangement program.
The green tax will be likely at the import stage on POL products and fossil fuels. The tax could manifest as a carbon levy which allows the federal government to retain the entire amount and bypass the Federal Divisible Pool under the NFC Award.
The federal government may prefer to collect revenue and spend it rather than distribute it among provinces under the NFC Award.
Interestingly, the IMF’s technical assistance report confirms that petroleum products have been exempt from Sales Tax since March 2022, and revenues from Sales Tax are shared with provinces under the NFC Award.
