The Centre for Policy Dialogue (CPD) on Sunday urged the government to overhaul Bangladesh’s fiscal framework for the energy sector, arguing that the country’s tax and tariff regime systematically discriminates against renewable energy technologies while heavily favouring fossil fuel imports.
Presenting findings of a new study at a media briefing at CPD’s Dhanmondi office, Research Director Dr Khondaker Golam Moazzem said the current fiscal structure is suppressing the competitiveness of clean energy technologies and creating barriers to Bangladesh’s transition toward renewables.
“LNG imports face a total tax incidence of only 9.5%, with zero VAT and only 2% advance income tax, while lithium-ion batteries face 61.8% and electric vehicles face up to 93.16%,” Moazzem said.
“This is not a neutral tax structure. It is discriminatory, and it is costing Bangladesh its energy future,” he added.
The media briefing, titled “Fiscal Discrimination between Fossil Fuel and Renewable Energy: Alternate Solutions to Address the Energy Crisis,” was presented by the CPD Power and Energy Study Team.
The study examined 50 energy-sector products across seven technology categories—solar, wind, energy storage, electric vehicles, grid and transmission infrastructure, fossil fuels, and fossil fuel-based power generation equipment.
Using the National Board of Revenue (NBR) tariff schedule for FY2025–26, CPD calculated the Total Tax Incidence (TTI) for each product category.
While solar and wind power generation equipment face tax incidences of around 28% to 31%, largely comparable to fossil fuel power generation machinery, technologies essential for integrating renewable energy into the national grid face significantly higher burdens.
According to the study, grid transformers face tax rates ranging from 61.8% to 93.16%, while energy storage systems are taxed between 61.8% and 93.2%. Three-wheeled electric vehicles also face taxes as high as 93.16%.
“Renewable generation equipment alone is not the primary challenge. The enabling technologies are,” the study noted.
CPD identified the 7.5% advance tax and customs duties of up to 25% as key drivers behind the elevated tax burden on clean energy technologies.
In contrast, LNG-related imports—including propane, butane and liquefied natural gas—benefit from zero VAT and only 2% advance income tax, making them among the most fiscally privileged imports in the energy sector.
CPD’s revenue foregone analysis estimated that preferential fiscal treatment for LNG causes the government to lose between Tk1,059 crore and Tk1,293 crore annually, compared to revenue that could be collected if LNG were taxed at rates equivalent to solar or wind technologies.
For coal imports, estimated foregone revenue ranges between Tk241 crore and Tk664 crore.
A separate fiscal incentive analysis found that LNG importers receive financial benefits worth around Tk1,672 crore solely due to full VAT exemptions—an advantage not extended to solar or wind businesses.
The study’s producer subsidy analysis, based on Bangladesh Power Development Board (BPDB) plant-wise electricity purchase data for FY2024–25, found that oil-based power generation receives the highest subsidy support.
The average subsidy for oil-based plants stands at Tk20.18 per kilowatt-hour (kWh), while the average subsidy across all fossil fuel plants is Tk7.48 per kWh.
Renewable energy plants receive an average subsidy of Tk8.93 per kWh, but unlike fossil fuel plants, they receive no capacity payments and must absorb high upfront capital costs, partly driven by elevated import taxes on solar equipment and batteries.
CPD noted that some oil-based plants receive exceptionally high support, citing the United-Anowara (300MW) plant, which receives a subsidy gap of around Tk39 per kWh.
The think tank also highlighted what it described as a structural imbalance in public investment.
According to the study, fossil fuel-based projects account for 87% of the total power and energy sector project budget and 79% of the revised FY2026 Annual Development Programme (ADP) allocation.
By comparison, renewable energy projects receive only 3% of the total power and energy project budget and 4.6% of the revised allocation.
CPD also criticized the FY2025–26 national budget for introducing no new incentives for solar or renewable technologies and for omitting the Tk100 crore renewable energy allocation that had been included in the previous fiscal year.
“From FY16 through revised FY26, fossil fuel-based projects have consistently absorbed more than 90% of the power and energy development allocation,” the study noted, adding that the pattern reflects a persistent structural bias despite repeated clean energy commitments.
CPD recommended a series of fiscal reforms for the upcoming FY2026–27 budget cycle to reduce barriers to renewable energy adoption.
The think tank proposed:
- Immediate removal of the 7.5% advance tax on solar and wind equipment
- Reduction of customs duty on lithium-ion batteries from 25% to 5%
- Elimination of the 20% supplementary duty on energy storage batteries
- Reduction of customs duty on grid infrastructure components—including transformers, conductors and transmission towers—from 25% to 5%
- Removal of supplementary duty on medium-sized transformers and low-voltage conductors
On fossil fuels, CPD called for restoring the standard 15% VAT on LNG imports by withdrawing existing exemptions and ending capacity payments for fossil fuel-based power plants.
The organization also urged the government to introduce dedicated green subsidies and grants, increase ADP allocations for renewable energy and grid modernization, and adopt climate-responsive budgeting across the Ministry of Finance and the Ministry of Power, Energy and Mineral Resources.
“The current fiscal framework creates a disconnect between Bangladesh’s renewable energy ambitions and the incentives embedded in the tax system,” Moazzem said.
He added that targeted reforms in advance tax, regulatory duties and customs duties could help lower transition costs while improving policy consistency in the energy sector.