CPD urges tax reform for clean energy
Bangladesh’s tax and fiscal policies continue to provide greater advantages to fossil fuel-based energy than to renewable technologies, creating challenges for the country’s transition to cleaner energy sources, according to a study by the Centre for Policy Dialogue (CPD).
The findings were presented at a media briefing in Dhaka on Sunday, where CPD Research Director Dr Khondaker Golam Moazzem said the existing tax structure places relatively lower burdens on fossil fuel imports while imposing higher duties on technologies required for renewable energy generation and grid integration.
“The current tax framework does not adequately support renewable energy development and may hinder efforts to strengthen long-term energy security,” Moazzem said.
The study, titled “Fiscal Discrimination between Fossil Fuel and Renewable Energy: Alternate Solutions to Address the Energy Crisis”, analysed 50 products across seven energy-related categories, including solar and wind technologies, energy storage systems, electric vehicles, grid infrastructure, fossil fuels and power generation equipment.
Using the National Board of Revenue’s FY2025-26 tariff schedule, CPD calculated the Total Tax Incidence (TTI) on various energy-related imports.
According to the study, liquefied natural gas (LNG) imports face a total tax incidence of 9.5 per cent, benefiting from zero value-added tax (VAT) and a comparatively low advance income tax rate.
In contrast, lithium-ion batteries are subject to a tax burden of 61.8 per cent, while some electric vehicles face taxation of more than 90 per cent.
Although tax rates on solar and wind generation equipment are broadly comparable to those applied to fossil fuel-based power generation machinery, CPD noted that supporting technologies essential for renewable energy deployment face substantially higher fiscal costs.
These include energy storage systems, grid transformers and electric mobility technologies, all of which play a key role in integrating renewable energy into the national power system.
The study identified advance tax and customs duties as major contributors to the higher costs of renewable energy-related technologies. In contrast, LNG and related products such as propane and butane continue to benefit from comparatively favourable tax treatment.
CPD estimated that the preferential treatment provided to LNG results in forgone government revenue of between Tk1,059 crore and Tk1,293 crore annually when compared with the tax rates applied to solar and wind technologies.
For coal imports, the estimated revenue impact ranges from Tk241 crore to Tk664 crore. The organisation also estimated that VAT exemptions on LNG imports provide benefits worth around Tk1,672 crore each year.
The think tank’s analysis of power sector subsidies found that oil-fired power plants receive the highest level of support, averaging Tk20.18 per kilowatt-hour.
Overall, fossil fuel-based power generation receives subsidies of approximately Tk7.48 per unit, while renewable energy projects receive around Tk8.93 per unit.
However, CPD noted that renewable energy projects do not benefit from capacity payments and often face higher upfront investment costs due to the expense of imported equipment and supporting infrastructure.
The study also highlighted disparities in public investment within the energy sector. According to CPD, fossil fuel-based projects account for 87 per cent of total power and energy sector project budgets and 79 per cent of the revised Annual Development Programme (ADP) allocation for FY2025-26.
By comparison, renewable energy projects receive only 3 per cent of total project allocations and 4.6 per cent of revised ADP funding.
To encourage greater investment in clean energy, CPD recommended removing advance tax on solar and wind equipment, reducing customs duties on lithium-ion batteries and grid infrastructure, and eliminating supplementary duties on energy storage technologies.
The organisation also proposed restoring the standard VAT rate on LNG imports, gradually phasing out capacity payments for fossil fuel-based power plants, expanding green subsidies and increasing public investment in renewable energy and grid modernisation.
CPD further called for climate-responsive budgeting and greater policy coordination to align fiscal measures with Bangladesh’s renewable energy targets.
Moazzem said achieving the country’s clean energy goals would require tax and spending policies that are more closely aligned with national energy and climate commitments.
He added that targeted fiscal reforms could help reduce the cost of energy transition while improving policy consistency and long-term energy sustainability.
