CPD urges fiscal overhaul to end discrimination against renewable energy

Bangladesh's fiscal structure heavily favours fossil fuels over renewable energy, artificially suppressing the competitiveness of clean energy technologies and undermining the country's energy transition goals, the Centre for Policy Dialogue (CPD) said today (7 June).

Presenting the findings of a new study at a media briefing at the CPD's Dhanmondi office, its Research Director Dr Khondaker Golam Moazzem said the country's tax and tariff regime imposes far lower burdens on fossil fuel imports than on technologies critical for integrating renewable energy into the national grid.

"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%," he said.

"This is not a neutral tax structure. It is discriminatory, and it is costing Bangladesh its energy future."

The 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, and calculated the Total Tax Incidence (TTI) for each using the National Board of Revenue's tariff for FY2025-26.

It found that while solar and wind power generation equipment face TTIs of around 28-31%, broadly comparable to fossil fuel power generation machinery, the enabling technologies indispensable for renewable integration face dramatically higher fiscal burdens. Grid transformers are taxed at 61.8 to 93.16%, energy storage systems at 61.8 to 93.2%, and three-wheeled electric vehicles at 93.16%.

"Renewable generation equipment alone is not the primary challenge," the study noted. "The enabling technologies are."

Advance tax at 7.5% and high Customs Duty of up to 25% are the principal drivers of the elevated burden on clean energy technologies. In contrast, LNG products such as propane, butane, and natural gas in liquefied form carry zero VAT and only 2% Advance Income Tax, making them among the most fiscally privileged imports in the entire energy sector.

Through a revenue foregone analysis, CPD estimated that the preferential fiscal treatment of LNG is causing NBR to forego at least Tk1,059 crore to Tk1,293 crore annually compared to what would be collected if wind or solar-equivalent tax rates were applied.

For coal, the foregone revenue ranges between Tk241 crore and Tk664 crore. A separate fiscal incentive analysis found that LNG importers are receiving financial benefits worth approximately Tk1,672 crore solely from full VAT exemption, a privilege not extended to solar or wind businesses.

The study's producer subsidy analysis, based on Bangladesh Power Development Board plant-wise electricity purchase data for FY2024-25, revealed that the average subsidy for oil-based power generation stands at Tk20.18 per kilowatt-hour, the highest among all fuel types, 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.

Oil-based plants receive both capacity payments and high fuel cost support, with some plants such as United-Anowara (300MW) receiving a per-unit subsidy gap of Tk39 per kWh.

Renewable energy plants, by contrast, receive no capacity payments and carry high upfront capital costs, partly driven by elevated import taxes on solar equipment and batteries.

The discriminatory fiscal stance is mirrored in public spending. CPD found that fossil fuel-based projects account for 87% of the total power and energy sector project budget and 79% of the revised FY2026 ADP allocation.

Renewable energy projects, by contrast, receive only 3% of the total PE project budget and 4.6% of the revised allocation.

The FY2025-26 budget provided no new incentives for solar or other renewable energy technologies and omitted the Tk100 crore allocation for renewables that had been included the previous year.

"From FY16 through RFY26, fossil fuel-based projects have consistently absorbed more than 90% of the power and energy development allocation," the study noted. "This structural bias has persisted despite repeated clean energy pledges."

CPD Recommendations

CPD put forward a series of fiscal reforms, urging the government to act in the upcoming budget cycle:

The think tank called for 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%, and elimination of the 20% Supplementary Duty on energy storage batteries.

It also recommended reducing Customs Duty on grid infrastructure components, including transformers, conductors, and transmission towers, from 25% to 5%, and eliminating the Supplementary Duty on medium-sized transformers and low-voltage conductors.

On fossil fuels, CPD called for the full withdrawal of VAT exemption on LNG imports, restoring the standard 15% rate, and an end to capacity payments for fossil fuel-based power plants.

It also urged the government to introduce dedicated green subsidies and grants for energy transition in the FY2026-27 budget, increase ADP allocations for renewable energy and grid modernisation, and pursue 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. "Strategic reforms targeting advance tax, regulatory duty, and selected customs duties could reduce transition costs while improving policy coherence."