Bangladesh’s transition to renewable energy is being held back by a fiscal regime that favours fossil fuels through preferential tax treatment, subsidies and budget allocations while imposing higher costs on clean-energy technologies, the Centre for Policy Dialogue (CPD) said on Sunday.
At a press briefing titled “Fiscal Discrimination between Fossil Fuel and Renewable Energy: Alternate Solutions to Address the Energy Crisis” in Dhaka, CPD Research Director Khondaker Golam Moazzem, Senior Research Associate Helen Mashiyat Preoty and Research Associate Atikuzzaman Shazeed said the existing tax and budget structure makes renewable energy artificially less competitive despite the country’s commitment to expanding clean power generation.
They argued that Bangladesh’s fiscal policies remain misaligned with its renewable energy targets and continue to favour fossil fuels over clean-energy alternatives.
Fossil-fuel-based power projects have historically received more than 95 per cent of development spending in the power sector, leaving renewable energy with less than 5 per cent.
The imbalance continues in the revised Annual Development Programme (ADP) for 2026, where fossil-fuel infrastructure accounts for 87 per cent of power and energy project allocations. Renewable energy projects receive only Tk3,652 crore, or 5 per cent of the total budget.
The FY2025-26 budget introduced no new incentives for solar or other renewable technologies and dropped a Tk100 crore allocation included in the previous fiscal year.
Analysis of 50 power and energy products found significant disparities in total tax incidence (TTI) favouring fossil fuels.
Liquefied natural gas (LNG) imports face a TTI of only 9.5 per cent because of a full value added tax (Vat) exemption and a low 2 per cent advance income tax, making them the least-taxed energy product in the sector.
In contrast, technologies required to support renewable integration face much higher tax burdens. Lithium-ion batteries carry a TTI of 61.8 per cent, while some electric vehicles and grid-related equipment face taxes as high as 93.2 per cent.
CPD argued that the tax structure creates an anti-renewable energy bias by imposing higher taxes on technologies needed to integrate renewable power into the grid.
Solar and wind equipment also face a uniform 7.5 per cent advance tax, increasing upfront investment costs for renewable projects.
Preferential treatment for LNG imports results in annual revenue losses of between Tk1,059 crore and Tk1,293 crore for the National Board of Revenue (NBR) compared with renewable energy alternatives.
LNG businesses receive an indirect financial benefit of Tk1,672 crore because of existing Vat structures compared with solar and wind energy operators.
The subsidy framework also heavily favours fossil fuels. Average support for fossil-fuel power generation stands at Tk7.5 per kilowatt-hour excluding capacity payments, while oil-fired plants receive subsidies of up to Tk20.18 per kilowatt-hour.
Renewable energy producers receive no capacity payments, putting them at a competitive disadvantage despite lower environmental costs.
To address the imbalance, CPD proposed a package of fiscal reforms for the FY2026-27 budget.
Recommendations include removing the 7.5 per cent advance tax on solar and wind equipment, reducing customs duty on lithium-ion batteries and grid infrastructure to 5 per cent from 25 per cent and eliminating the 20 per cent supplementary duty on energy storage systems, transformers and electric vehicles.
The think tank also called for ending LNG’s zero-Vat status by reinstating the standard 15 per cent Vat and phasing out targeted incentives such as capacity payments for fossil-fuel plants.
CPD recommended redirecting development spending towards renewable generation, energy storage and smart-grid infrastructure to support a more balanced energy transition.
CPD researchers said the measures could initially have an inflationary impact but argued that long-term expansion of the renewable energy sector would offset revenue losses and ensure sustainable energy security.
