Pakistan Resists IMF’s Carbon Levy Proposal
Govt Questions Fund Allocation, Provincial Concerns, and Impact of Fossil Fuel Tax
Pakistan has pushed back against the International Monetary Fund (IMF)’s demand to impose a carbon levy on petroleum products, coal, and internal combustion engine (ICE) cars. The IMF is advocating for this tax to discourage the use of fossil fuels and promote green energy. However, the Pakistani government has raised concerns over the fund’s allocation, provincial issues, and the impact on the economy.
IMF’s Carbon Levy Proposal
The IMF has proposed an increase in the existing petroleum levy from Rs60 per litre to Rs70 per litre over three years. This would begin with a Rs3 per litre hike in the first year. The additional revenue from the levy is intended to fund green energy initiatives.
Increased Excise Duty on ICE Vehicles
In addition to the petroleum levy, the IMF has suggested raising the federal excise duty on internal combustion engine (ICE) cars. This additional duty would be considered part of the carbon levy framework.
Pakistan’s Resistance to the Proposal
On Friday, Pakistani officials from various ministries, including Petroleum, Finance, Climate Change, Industries, and the Federal Board of Revenue (FBR), engaged in discussions with an IMF team regarding the proposed levy. The government expressed concerns about the utilization of funds, provincial jurisdiction issues, and the economic burden of the levy.
Key Concerns Raised by Pakistan
1. Fund Allocation and Transparency Issues
The government questioned how the IMF plans to allocate the funds collected under the carbon levy. Transparency in fund usage remains a key issue, as authorities worry about effective utilization for climate initiatives.
2. Provincial Jurisdiction on Coal
A major sticking point in the negotiations was the proposed carbon levy on coal. Unlike petroleum, which falls under federal jurisdiction, coal is a provincial subject. Any attempt to impose a levy could lead to constitutional conflicts between the federation and provinces.
3. Revenue Distribution Between Federal and Provincial Governments
Unlike tax revenue, which is distributed among provinces under the National Finance Commission (NFC) Award, levy collections remain outside the distributable pool. However, in the case of the carbon levy, the IMF suggests that 50% of the revenue should be allocated to provinces, raising further jurisdictional concerns.
4. High Tax Burden on Automobiles
Pakistani cars are already subjected to multiple taxes, including advance income tax, sales tax, federal excise duty, and high registration fees. The FBR has supported increasing federal excise duty on ICE cars, but the industry remains concerned about the overall taxation burden, which currently accounts for 36% to 45% of a car’s total price.
IMF’s Climate-Linked Loan Conditions
The IMF had initially proposed the carbon levy during discussions on the Resilience and Sustainability Facility (RSF), a special IMF loan program designed for climate-vulnerable nations. Pakistan is seeking over $1 billion under this facility.
Disbursement Linked to Climate Spending
Finance Minister Muhammad Aurangzeb confirmed that disbursement under the RSF will be linked to Pakistan’s actual climate-related expenditures. The IMF wants Pakistan to impose a carbon levy on ICE vehicles and fossil fuels as part of these conditions.
Pakistan’s Carbon Emissions and Green Energy Transition
The transport sector accounts for 10% of Pakistan’s total carbon dioxide emissions. A shift towards cleaner transportation options will require significant investment, and the government estimates that Rs155 billion will be needed by 2030 to replace conventional vehicles with green alternatives.
Pakistan’s Green Energy Transition Challenges
1. Dependence on Imported Fossil Fuels
Pakistan imports nearly one-third of its energy in the form of oil, coal, and re-gasified liquefied natural gas (RLNG). The country recently signed a $1.2 billion oil deal with Saudi Arabia to secure petroleum on deferred payments to meet balance of payment needs.
2. Cost of Transitioning to Clean Vehicles
Two-Wheeler and Three-Wheeler Vehicles
- Traditional two-wheelers are 100% cheaper than electric motorcycles.
- New-energy three-wheelers are 123% more expensive than conventional models.
- The IMF suggests that revenue from the carbon levy be used to subsidize electric two- and three-wheelers.
Four-Wheeler Cars
- Clean-energy four-wheelers are 65% more expensive than ICE cars.
- The government aims for 30% of new car sales by 2030 to be electric or hybrid.
3. Need for Infrastructure Development
Transitioning to electric and new-energy vehicles requires charging stations, tax waivers, and subsidies, which demand significant financial resources.
4. National Vehicle Emissions Efficiency Standards
The government plans to introduce new vehicle emissions standards to encourage the adoption of fuel-efficient and cleaner vehicles.
Conclusion
Pakistan is caught in a complex negotiation with the IMF over the proposed carbon levy. While the IMF sees it as a tool for climate resilience, the Pakistani government is wary of its economic impact, revenue distribution, and the feasibility of transitioning to clean energy. As discussions continue, the government must balance its climate commitments with economic realities to ensure a sustainable transition.
FAQs
1. Why is Pakistan resisting the IMF’s carbon levy proposal?
Pakistan has raised concerns over fund allocation, provincial jurisdiction on coal taxation, and the economic burden of the levy on consumers and industries.
2. How does the IMF propose to use the carbon levy revenue?
The IMF suggests that the revenue be used to promote green energy initiatives, including subsidies for electric vehicles and cleaner transportation infrastructure.
3. How will the carbon levy affect car prices in Pakistan?
With already high taxation on cars, the additional carbon levy could further increase vehicle prices, making it harder for consumers to afford new vehicles.
4. What is Pakistan’s plan for transitioning to clean energy vehicles?
Pakistan aims for 90% of new two- and three-wheeler purchases to be electric by 2030, along with 30% of new car sales being based on clean-energy technologies.
5. What role does the Resilience and Sustainability Facility (RSF) play in this debate?
The RSF is an IMF loan facility tied to climate initiatives. The carbon levy is one of the conditions for Pakistan to receive over $1 billion in funding under this program.
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