Budget to offer sweeping tax incentives for renewables

The government is set to unveil a wide-ranging fiscal incentive package for the country's renewable energy sector in the national budget to be placed in parliament today (11 June), including duty-free imports of key solar equipment, a tax holiday for solar power generation and tax rebates for consumers using solar electricity.

According to officials at the power and energy ministry, Finance Minister Amir Khosru Mahmud Chowdhury is expected to propose a zero percent tax rate for solar power generation projects until 2035.

The budget is also likely to introduce a 5% tax rebate on payments for solar electricity bills, providing a direct incentive for households, businesses and industries to invest in rooftop solar systems.

Industry insiders say the proposed measures could significantly reduce project costs, attract private investment and accelerate Bangladesh's transition towards cleaner and more sustainable energy sources.

A central element of the package is a proposal to exempt major solar power components from customs duty, regulatory duty, supplementary duty and advance tax through a notification that would remain effective until 30 June 2031.

Officials say the long-term validity of the exemption is intended to provide policy certainty for investors and developers planning large-scale renewable energy projects.

Tax burden on solar equipment

The proposed measures come as renewable energy technologies continue to face a substantial tax burden despite the government's stated ambition to increase the share of clean energy in the national power mix.

According to industry data, most solar equipment imported into Bangladesh currently faces a total tax incidence ranging from 27.5% to 28.7%, driven by a combination of customs duty, value-added tax, advance income tax and advance tax.

Assembled solar photovoltaic modules are subject to a total tax incidence of 28.7%, while non-assembled solar panels face a burden of 27.5%. Photovoltaic generators and solar inverters are also taxed at 28.7%.

The burden is significantly higher on several supporting components essential for solar projects. Direct current cables face a total tax incidence of 61.8%, while charge controllers and monitoring systems are taxed at 39.7%.

Industry experts have long argued that these taxes substantially increase project costs and undermine the competitiveness of renewable energy technologies, particularly because a uniform 7.5% advance tax is imposed on solar equipment imports regardless of their strategic importance in supporting the country's energy transition.

Under the current tax structure, customs duty on renewable energy equipment ranges from 1% to 10%, while value-added tax is charged at 15%, advance income tax at 5% and advance tax at 7.5%.

Industry welcomes proposed reforms

"Previous attempts to accelerate renewable energy systems, particularly distributed ones like rooftop solar, remained largely fragmented due to high import duties," Shafiqul Alam, lead analyst for Bangladesh Energy at the South Asian regional office, told TBS.

"The current government's attempt to waive these disproportionate duties on distributed systems will reduce overall import costs by 20% to 30%. This will significantly bring down the Levelised Cost of Energy from distributed renewable systems, enhancing interest across industries, commercial buildings, and households," he added.

Shafiqul further noted that given recent power tariff hikes, consumers with higher electricity bills will save substantially more by implementing new rooftop solar projects.

Energy experts also said the incentives could improve the competitiveness of renewable energy relative to fossil fuel-based generation, which has historically benefited from various fiscal incentives and policy support.

The proposed consumer-level tax rebate is likewise expected to encourage wider adoption of rooftop solar systems by lowering the effective cost of solar electricity consumption.