Solar import taxes dim Bangladesh apparel’s green ambitions

Highlight:

• Apparel sector seeks rooftop solar expansion to cut fuel imports
• Import taxes make solar 30–50% costlier than in India
• Solar equipment duties reach up to 77%, raising costs.
• Financing hurdles, despite central bank's renewable energy green fund
• EU carbon rules push exporters toward renewable energy adoption
• Rooftop solar could generate 2,000 MW, saving Tk2,500 crore

Bangladesh's apparel sector is keen to expand rooftop solar, but entrepreneurs say steep import taxes are inflating installation costs and slowing large-scale adoption which could save the government Tk2,500 crore each year on primary fuel imports.

The country's largest export sector has been racing to cut carbon emissions to meet global compliance, and the government has pledged to raise the renewable share of power generation to 20% by 2030 from around 5% now. 

But high taxes on imported equipment are driving up costs, setting those 30% to 50% higher than in India, some entrepreneurs have said.

Installing solar panels– known as photovoltaic generator sets for industrial use requires 13 types of equipment. While panels and inverters are taxed at just 1%, some of the rest, representing about half of the total installation cost, face duties as high as 62% or 77%.

Industry leaders say this raises installation costs by about one-third.

"We are saving foreign currency by generating electricity through solar in the private sector. In this case, the government should be providing subsidies"

Fazlee Shamim Ehsa, Managing Director, Fatullah Fashions Limited

Though the central bank has created a green fund to support renewable energy at low interest rates, investors complain of procedural hurdles and insufficient financing. 

For years, the government has provided various benefits such as reduced import duties for private sector power producers using conventional fossil fuels. According to a National Board of Revenue (NBR) circular last year, private sector power producers are exempted from all import duties except for a 5% VAT. 

But, renewable users, though highlighted much in government policy and focus, are left out, entrepreneurs have said. To achieve its renewable energy goal, the government should eliminate import duties on solar equipment and instead provide incentives to encourage investment in green energy transition, they have felt. 

Infograph: TBS

Why solar panels here cost so high

NZ Textile Limited, one of the country's largest textile mills, has already installed about 10 megawatts of solar power, the highest among textile mills. The company's goal is to expand capacity to 30 megawatts from solar.

Its managing director, Saleudh Zaman Khan, explained, "Taxes on imported solar equipment have increased our costs by more than 30%. A project that costs Tk2 crore in India ends up costing Tk3 crore in Bangladesh. That is why we are lagging behind in cost competitiveness."

Fatullah Fashions Limited, a US Green Building Council-certified platinum-rated green garment factory in Narayanganj, has set a target of becoming net-zero carbon within the next five years, meaning that all of its electricity demand will be met through its own solar power. The company has already begun generating some electricity through solar installations, with additional capacity under construction.

"We are saving foreign currency by generating electricity through solar in the private sector," its managing director Fazlee Shamim Ehsan said. 

"In this case, the government should be providing subsidies," he added.

"We have already given concessions on certain solar equipment, including some in the last budget. However, many of these items are also used in sectors other than solar, and we must protect domestic industries. Otherwise, local manufacturers of similar products will claim their interests are being ignored."

Abdur Rahman Khan, NBR Chairman

Rising Group, one of the country's leading textile and garment producers, is currently generating approximately 4 megawatts of electricity from solar and has plans to expand by another 10 megawatts.

Its managing director, Mahmud Hasan Khan Babu, however, told TBS, "The excessive import tax on solar equipment is one of the key obstacles."

Entrepreneurs also argue that the cost of setting up a solar power plant of the same capacity in Bangladesh is about 50% higher than in neighbouring India, largely due to import tax.

Among textile mills, spinning mills consume the most electricity, much of it generated through captive power systems running on gas and imported fuel, placing a heavy burden on the government.

According to the Bangladesh Textile Mills Association (BTMA), out of 527 spinning mills, around 40 have installed solar panels, collectively generating about 50 megawatts for production purposes. Meanwhile, many garment factories have also installed solar panels, though exact figures on the number of factories and total power generated were not available from the industry's two main associations.

File photo of Beximco's Teesta solar plant Latshal Char, a remote shoal on the bank of Teesta River. Photo: Syed Zakir Hossain

Import duties not lowered in fear of misuse

In 2023, in response to an application by an importer, the Customs Policy Wing of the NBR issued an explanation, or advance ruling, stating why the 1% import duty facility could not be applicable for 11 types of equipment under 'photovoltaic generator sets.'

It clarified that since some of the equipment are considered 'parts of general use' and 'not identifiable as parts suitable for use solely or principally with a particular kind of machine,' they cannot qualify for the reduced tax facility.

At the time, a customs official involved in the ruling told The Business Standard on condition of anonymity, "Given the risk of misuse and considering the interests of local manufacturers of the same equipment, no exemption can be granted in this case."

NBR Chairman Abdur Rahman Khan also told TBS, "We have already given concessions on certain solar equipment, including some in the last budget. However, many of these items are also used in sectors other than solar, and we must protect domestic industries. Otherwise, local manufacturers of similar products will claim their interests are being ignored."

"If there is a reasonable demand, changes can only be made in the next budget" –he added.

Local solar equipment manufacturers have also complained that the import tax facility is being misused. A leader of the Solar Module Manufacturers' Association of Bangladesh (SMMAB) – a platform of local solar equipment producers – told TBS on condition of anonymity, "If industries are given tax benefits, they are being misused."

He added that, in the interest of local industries, the government could require that a certain percentage of solar-related equipment be sourced from domestic manufacturers.

However, Golam Baki Masud, general secretary of the association, told TBS, "In the case of industries installing rooftop solar panels, the government can provide exemptions only for a few specified items, based on specific orders."

However, NZ Textile MD Saleudh Zaman Khan argued that most of the equipment subject to high import duties is not yet manufactured in Bangladesh. "Even though some equipment is manufactured locally, the quality does not meet industry standards," he said, stressing that imports are unavoidable.

On the issue of misuse, he proposed introducing safeguards, saying, "To prevent abuse outside the industry, Buet's expert panel could issue certification or another form of verification. But cutting off the head to cure a headache is not the solution."

2000 MW solar potential in the apparel sector

Bangladesh's main market – the European Union – where the country sends about 50% of its total exports, has in recent years adopted several initiatives to reduce fossil fuel dependency in production and promote renewable energy in supply chains. These include the EU Corporate Sustainability Due Diligence Directive (CSDDD), the EU Carbon Border Adjustment Mechanism (CBAM) – a carbon tariff on carbon-intensive products – and the German Supply Chain Due Diligence Act.

Through the Carbon Border Adjustment Mechanism, the EU will impose additional taxes on its own buyers for these industries in the supply chain, based on a certain level of carbon emissions. This means Bangladeshi export industries will need to shift away from fossil fuels and move toward renewable energy in production to remain competitive in export markets. Otherwise, exporters risk losing market access.

Saleudh Zaman Khan, also the vice president of BTMA, said the available rooftop space in Bangladesh's textile and garment sector could accommodate up to 2,000 MW of solar capacity, meeting nearly 20% of the sector's total electricity demand.

According to his calculations, this would generate electricity worth Tk2,500 crore annually and cut energy costs (fuel and gas-based) by the same amount. It would also reduce the government's reliance on fuel imports and save significant foreign exchange.

He added that if the government waives import duties, it would ultimately benefit both the economy and the government in the long run.