Bangladesh’s fiscal regime is heavily skewed in favour of fossil fuels, creating structural barriers to renewable energy development and weakening the country’s transition to clean energy, the Centre for Policy Dialogue (CPD) said on Sunday.
Presenting findings of a new study at a media briefing in Dhaka, CPD Research Director Dr Khondaker Golam Moazzem said the existing tax and tariff framework imposes significantly lower burdens on fossil fuel imports compared to key technologies required for renewable energy integration.
He noted that liquefied natural gas (LNG) imports face a total tax incidence of just 9.5 percent, benefiting from zero VAT and only 2 percent advance income tax. In contrast, lithium-ion batteries are taxed at 61.8 percent, while electric vehicles face tax rates as high as 93.16 percent.
“This is not a neutral tax structure; it is discriminatory and is holding back Bangladesh’s energy future,” he said.
The study, titled “Fiscal Discrimination between Fossil Fuel and Renewable Energy: Alternate Solutions to Address the Energy Crisis,” analysed 50 energy-sector products across seven categories, including solar, wind, storage systems, electric vehicles, grid infrastructure and fossil fuel technologies. It used the National Board of Revenue’s FY2025-26 tariff schedule to calculate total tax incidence (TTI).
While tax rates on solar and wind generation equipment—ranging between 28 and 31 percent—are broadly comparable to fossil fuel-based machinery, the study found that “enabling technologies” essential for renewable integration face disproportionately high taxation.
Grid transformers, energy storage systems and related equipment are subject to tax rates ranging from 61.8 percent to over 93 percent, significantly raising the cost of renewable deployment.
The report identified advance tax of 7.5 percent and customs duties of up to 25 percent as the main contributors to the high tax burden on clean energy technologies. In contrast, LNG products such as propane, butane and liquefied natural gas enjoy full VAT exemption and minimal income tax.
Through a revenue foregone analysis, CPD estimated that preferential tax treatment for LNG results in annual revenue losses of Tk1,059 crore to Tk1,293 crore. For coal, the foregone revenue ranges between Tk241 crore and Tk664 crore.
Additionally, LNG importers receive financial benefits worth around Tk1,672 crore annually due to VAT exemptions alone—privileges not extended to renewable energy businesses.
The study also highlighted disparities in power sector subsidies. Based on Bangladesh Power Development Board data for FY2024-25, oil-based power plants receive the highest average subsidy at Tk20.18 per kilowatt-hour, compared to Tk7.48 per kWh for fossil fuel plants overall. Renewable energy plants receive an average subsidy of Tk8.93 per kWh.
Some oil-based plants receive exceptionally high support, with per-unit subsidy gaps reaching up to Tk39 per kWh, driven by capacity payments and fuel cost adjustments.
In contrast, renewable energy projects receive no capacity payments and face high upfront investment costs, partly due to elevated import taxes on equipment.
The imbalance is also reflected in public investment patterns. CPD found that fossil fuel-based projects account for 87 percent of the total power and energy sector project budget and 79 percent of the revised Annual Development Programme (ADP) allocation for FY2026.
Renewable energy projects, meanwhile, receive only 3 percent of the total project budget and 4.6 percent of the revised allocation.
The FY2025-26 national budget introduced no new incentives for renewable energy and excluded a Tk100 crore allocation that had been earmarked for the sector in the previous fiscal year.
“From FY2016 to the revised FY2026, fossil fuel-based projects have consistently absorbed over 90 percent of development spending in the power and energy sector,” the study noted, adding that the trend persists despite repeated policy commitments to expand clean energy.
The CPD has urged the government to undertake immediate fiscal reforms in the upcoming budget cycle to remove discriminatory taxes, rebalance incentives and accelerate the country’s transition to renewable energy.