July 9 (Bloomberg) -- Pakistan’s President Asif Ali Zardari ordered a new fuels tax effective today to circumvent the Supreme Court’s suspension of an earlier levy and avoid a shortfall in government revenue.

The tax restores state-controlled fuel prices to where they were before the Supreme Court suspended a week-old carbon tax on July 7, according to a statement on the Oil & Gas Regulatory Authority’s Web site. The Supreme Court order forced the government to cut prices yesterday.

Zardari’s decree may risk a renewal of conflict between him and Pakistan’s chief justice, some analysts said. Zardari angered supporters of Chief Justice Iftikhar Muhammad Chaudhry by refusing for almost a year to reverse the judge’s sacking in 2007 by the former military government.

“This may be the beginning of political instability if the court keeps on interfering in government affairs,” said Asif Ali Qureshi, head of research at Invisor Securities Ltd. in Karachi. “One way or the other, the government will impose tax because it has to meet its targets. If it is not through a carbon tax, it would be under some other name.”

Prime Minister Yousuf Raza Gilani said the government had sought the decree on raising fuel prices. The government wants to explain the financial impact of oil prices to the court, Gilani told reporters in Islamabad today.

State’s Right

President Zardari has the right to issue a decree imposing the levy, spokesman Farhatullah Babar told reporters today in the capital, Islamabad. Taxation is the state’s right, he said.

“The government has levied petroleum levy in place of carbon surcharge on petroleum products,” according to a statement on the regulator’s Web site.

Gasoline prices were increased by 11.60 rupees to 62.13 a liter and diesel by 3.48 rupees to 54.94 rupees, according to the Oil & Gas Regulatory Authority. Kerosene was raised by 6.96 rupees to 59.35 rupees while prices of high octane gasoline were increased by 16.24 rupees to 78.78 rupees.

The carbon tax was imposed to help meet the budget deficit target of 4.7 percent of gross domestic product in the financial year that started July 1. The government is targeting collections of 122 billion rupees ($1.5 billion) from the tax this year, according to Qureshi.

Chaudhry heads a three-judge panel of the court that heard the case challenging the carbon tax. The panel adjourned the case for four weeks, lawyer Ikram Chaudhry, who filed the petition, told reporters in Islamabad today. The presidential decree may be challenged in the court, which will be asked to reduce gasoline prices again, he said.

Reinstated Judge

Pakistan’s former military ruler, Pervez Musharraf, declared emergency rule in November 2007 and fired Chaudhry, who had agreed to hear a case challenging the legality of Musharraf’s re-election. A 16-month campaign by lawyers and opposition leader Nawaz Sharif culminated in mass protests in Lahore in March.

Zardari agreed to reinstate the chief justice March 16 only after losing control of Lahore, the country’s second-largest city, to pro-Chaudhry protesters led by Sharif.

Pakistan reviews domestic oil prices periodically to reflect changes in the global markets. The South Asian country imports about 85 percent of the oil it uses domestically.

To contact the reporter on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net.

Last Updated: July 9, 2009 07:05 EDT