Fossil fuels enjoy tax breaks while renewables face steep fiscal burden: CPD

Bangladesh's fiscal regime is heavily tilted in favour of fossil fuels, with LNG imports enjoying a tax incidence as low as 9.5% while key renewable energy technologies such as batteries, electric vehicles and grid infrastructure face taxes ranging from 61% to 93%, according to a new study by the Centre for Policy Dialogue (CPD).

The findings were unveiled at a CPD briefing titled "Fiscal Discrimination between Fossil Fuel and Renewable Energy: Alternate Solutions to Address the Energy Crisis" on Sunday (7 June) at its headquarters in the capital.

Research Director of CPD Khondaker Golam Moazzem presented the study findings and said the country's tax structure is undermining the energy transition by making renewable energy technologies artificially less competitive while continuing to favour fossil fuel imports and fossil fuel-based power generation.

The CPD study found that LNG receives the most favourable fiscal treatment of total tax incidence of only 9.5% because they enjoy full VAT exemption and pay only 2% advance income tax.

In contrast, solar equipment faces average tax burdens of around 31%, while batteries, electric vehicles and grid infrastructure are subject to significantly higher rates.

Grid and transmission equipment face average tax incidence of around 61%, energy storage technologies around 72%, and electric vehicles around 70%, according to the study.

Renewable-enabling technologies taxed the most

CPD said, solar panels, wind turbines and fossil fuel-based generation equipment face broadly similar tax rates of around 28%-31%, technologies essential for integrating renewable energy into the power system face substantially higher burdens.

Lithium-ion batteries are subject to a 61.8% tax incidence, while primary manganese dioxide batteries face a tax burden exceeding 93%.

Electric three-wheelers and electric vehicles powered solely by electric motors also face tax incidence of more than 93%.

Similarly, transformers, conductors, transmission towers and electricity meters used in grid expansion face tax burdens ranging from 61.8% to 93.2%, significantly increasing the cost of expanding and modernising the country's transmission network.

Budget still dominated by fossil fuel projects

The CPD also highlighted a sharp imbalance in public spending.

In the revised FY26 budget, fossil fuel-based infrastructure projects account for 87% of the total power and energy project portfolio and receive nearly 79% of annual development programme (ADP) allocations.

Renewable energy projects, by contrast, account for only 3% of the total project portfolio and receive just 5% of the allocation.

Using BPDB's plant-wise electricity purchase data, CPD found that fossil fuel-based power plants continue to receive substantial indirect support.

The study estimates that average subsidies for fossil fuel-based power generation stand at Tk7.5 per kilowatt-hour, compared with Tk9 per kilowatt-hour for renewable energy plants.

However, oil-fired plants receive the highest support, with average subsidy requirements reaching Tk20.18 per unit due to high fuel costs and capacity payment obligations.

To remove what it describes as "fiscal discrimination" against renewable energy, CPD recommended eliminating the 7.5% advance tax imposed on solar and wind equipment, reducing customs duty on lithium-ion batteries from 25% to 5%, and removing supplementary duties on energy storage technologies.

The think tank also proposed reducing customs duty on grid infrastructure equipment, lowering taxes on electric vehicles, withdrawing the VAT exemption enjoyed by LNG imports and gradually phasing out capacity payment-related incentives for fossil fuel projects.