The government has proposed an extensive package of tax and duty incentives in the FY2026-27 budget aimed at developing Bangladesh’s electric vehicle (EV) industry, reducing dependence on fossil fuel-based transportation and encouraging local manufacturing.
The proposed measures cover EV imports, domestic vehicle production, component manufacturing, charging infrastructure and plug-in hybrid vehicles, while simultaneously increasing taxes on certain categories of petrol and diesel-powered vehicles.
Industry stakeholders say the incentives could significantly lower EV prices, attract investment into local manufacturing and help establish a domestic EV supply chain, marking one of the most comprehensive policy efforts to support the sector to date.
Under the budget proposal, companies that locally manufacture four-wheeler and three-wheeler electric vehicles through substantial value-added activities, including body fabrication, welding, painting and assembly, will be allowed to import raw materials and components by paying only a 3 per cent customs duty. All other applicable taxes and duties will be waived.
Manufacturers undertaking a lower level of value addition through parts assembly and painting will be permitted to import components with a 15 per cent customs duty while remaining exempt from other taxes and duties.
The government has also proposed special incentives for local production of electric buses and trucks. Manufacturers in this segment will be able to import raw materials and components with only a 5 per cent VAT, while all other taxes and duties will be waived.
These incentives are proposed to remain in force until 30 June 2031.
In addition, locally manufactured hybrid vehicles, plug-in hybrid vehicles, electric three-wheelers, electric four-wheelers, electric buses and electric trucks are proposed to receive conditional VAT exemptions until 2030.
An analysis of the proposed statutory regulatory orders accompanying the budget indicates that the government’s objective extends beyond vehicle assembly. The framework is designed to encourage the development of a comprehensive domestic EV manufacturing ecosystem.
To qualify for the incentives, manufacturers will be required to establish their own welding shops, paint shops, body-in-white production facilities, battery and drivetrain installation capabilities, testing and quality control systems, and after-sales service networks. They must also have technology transfer agreements with foreign brands and employ at least 250 Bangladeshi workers.
The proposed SROs also extend incentives to local component manufacturers and vendors, creating opportunities for the development of a domestic EV supply chain. Companies producing EV parts locally will be eligible for significant tax benefits, subject to meeting a range of technical and regulatory requirements.
To encourage wider adoption of electric vehicles, the government has proposed substantial reductions in import duties on EVs.
Currently, the overall tax incidence on imported electric vehicles is around 93 per cent. Under the proposed budget, the rate would fall to 64 per cent for EVs priced up to $25,000 and 80 per cent for EVs valued up to $50,000.
The government has also proposed extending existing tax exemptions on imported electric buses used by schools, colleges, universities and similar educational institutions until June 2030. Full duty and tax exemptions would continue for these buses, while other electric buses and trucks would remain exempt from all taxes and duties except VAT.
Plug-in Hybrid Electric Vehicles (PHEVs) are also set to benefit from lower taxation.
Under the proposal, the overall tax burden on brand-new PHEVs with engine capacities of up to 1,800cc would decline from 93.16 per cent to 73.44 per cent. For PHEVs with engine capacities of up to 2,000cc, the tax incidence would fall from 132.36 per cent to 96.10 per cent.
Industry experts have long identified the lack of charging infrastructure as one of the biggest barriers to EV adoption in Bangladesh.
To address this challenge, the government has proposed eliminating all taxes and duties on the import of EV chargers and charging stations. The existing total tax burden of 39.75 per cent on these products would be reduced to zero, a move expected to encourage private-sector investment in charging networks across the country.
While taxes are being reduced for electric and hybrid vehicles, the government has proposed increasing the tax burden on imported petrol and diesel-powered vehicles with engine capacities ranging from 1,200cc to 1,600cc. The overall tax incidence on these vehicles would rise from 132.36 per cent to 155.88 per cent.
The move reflects a broader policy approach aimed at encouraging environmentally friendly transportation while gradually discouraging fossil fuel-powered vehicles.
Commenting on the proposed measures, Managing Director of Bangladesh Auto Industries Ltd (BAIL) Mir Masud Kabir said the duty reductions would have a positive impact on the EV market because consumers would be able to purchase electric vehicles at lower prices.
He said local manufacturers are likely to remain competitive in the four-wheeler segment, particularly SUVs and sedans, where domestic production can generate significant value addition and create a strong competitive advantage.
However, he noted that competition may be more challenging in the electric bus and truck segment because the effective tax advantage for local manufacturers is relatively small. In addition, foreign producers often benefit from subsidies and incentives provided by their home governments, which can make imported vehicles more competitive.
Kabir also pointed out that the budget proposes tax reductions not only for locally manufactured EVs but also for completely built-up imported electric vehicles. As a result, imported EV prices are expected to decline, while locally manufactured EVs could become even more competitively priced because of the additional incentives available for domestic production.
