The much-delayed draft of the “Electric Vehicles Industry Development Policy 2025” may appear attractive to green mobility enthusiasts, as it proposes the most generous automobile incentives in the country.
However, entrepreneurs argue that the policy, aimed at industry development, will boost EV imports, not investments.
Alongside encouraging electric vehicle (EV) adoption and building a usage ecosystem, the policy drastically reduces the total tax incidence (TTI), which includes all duties, taxes, and value-added tax (VAT), to 37% for all electric passenger cars until 2030, from 92% at present.
Imported electric two-wheelers and commercial four-wheelers will face a 31% TTI, slightly lower than the current level. TTI for locally painted and assembled EVs in all segments will be 15.25% until 2035, down from around 35% since July this year.
On the other hand, if an EV manufacturer uses locally made chassis and a few important parts to paint and assemble EVs in Bangladesh, they will pay only 1% import duty on raw materials and parts, with no tax or VAT until 2040.
“Sounds encouraging, but there are catches before a company embarks on investing,” said Dewan Shajedur Rahman, Chairman of Asian Holdings, which built a car assembly plant for Cherry SUVs.
Echoing him, Mostafizur Rashid Bhuiyan, executive director of RANCON Group, which assembles and paints Mitsubishi and Proton cars in Gazipur, said the factory for fossil fuel cars was feasible because the TTI dropped to around 37% for local units from 127% for imported ones.
“We could cut the price of the Mitsubishi Xpander to Tk 34 lakh from Tk 42 lakh earlier this year due to localisation.”
The proposed EV policy aims to narrow the TTI gap, which is the difference in total duty and tax between imports and local painting and assembling, to 21.75 percentage points for electric cars and 15.75 percentage points for other segments.
For fossil fuel cars, the edge is about 90 percentage points, which allows local plants for Hyundai, Mitsubishi, Kia, and Proton to cut prices.
An investment of Tk 200-250 crore for a local plant involves a 14% cost of capital, alongside added factory and other operational costs.
The TTI advantage offered will be offset by the costs of localisation, said Shajedur Rahman.
“Don’t expect localisation for EVs if the proposed TTI structure is finalised,” said Rashid, suggesting a 55-60% TTI for imported electric cars to enhance local assemblers’ competitive edge.
“If an imported electric car costs near that of a locally assembled car, the policy will not attract investments,” he added.
The chicken and egg problem
“Limiting it to painting and assembling is no one’s dream,” said Runner Group Chairman Hafizur Rahman Khan, the man who pioneered motorcycle and three-wheeler manufacturing in Bangladesh and later expanded the group’s portfolio to include commercial vehicles and EVs.
“But there remains a chicken-and-egg problem: expand the market first through easing imports to attract investments or restrict imports to offer an edge to local plants?” said Rashid.
Investing for maximum local value addition requires a minimum volume for each model. For that, the industry needs a much larger local market and export opportunities, according to Sajedur Rahman.
The 1% duty proposed for local EV manufacturers is encouraging, said industry leaders. But to manufacture just one electric car model, including its chassis, the industry will need around Tk 500 crore or more in investments, alongside a minimum production of 80,000-100,000 units for the breakeven point.
Bangladesh’s car market is stuck below 30,000 units a year, with around 80% captured by used Japanese cars. Amid the unbuilt charging infrastructure and other necessary ecosystems, the number of electric cars has yet to exceed 500 in Bangladesh.
“With reduced import duties and prices, electric cars will rise,” said Rashid, “But we also need to develop our industry.”
Shubrata Ranjan Das, Deputy Managing Director of ACI Motors, which built the first Yamaha motorcycle factory, said Bangladesh needs to rationalise its duties in the coming years for LDC graduation.
“But it should be done in a balanced way so that local plants are not hurt by easy imports,” he added.
Echoing Rashid, he said the TTI gap between locally assembled and imported electric cars should be at least 35% to attract investments and make EVs affordable.
With the market’s expansion, assemblers will gradually emerge as manufacturers.
A significant boost could come from exports, but Bangladesh offers no competitive edge over regional car manufacturing nations, other than cheaper labour.
Hafizur Rahman Khan said incentives for exports could help. More importantly, the policy should categorically address the need for developing local backward linkages, without which the automobile industry will remain dependent on imported parts.
“Most importantly, policies should be reflected in consistent implementation by the government entities,” he added.
Proposals for an EV boost
Aiming for a 30% EV market share by 2030, the government has proposed reducing EV registration fees to half of those for equivalent fossil fuel vehicles.
Mandatory EV purchases for government entities, and easing bank financing, are also on the cards.
No Advance Income Tax (AIT) will be collected on new EV registrations until 2030. AIT will also be exempt during regular fitness certificate and tax token renewals for EV owners.
Battery-run bicycles and the uncertified three-wheeler called “easy bikes” will not be treated as EVs.
However, electric three-wheelers, if they meet local standards, will be registered as EVs. Small electric cars, equivalent to 1000 cc petrol cars, will also be permitted.
Lithium-ion batteries, on the other hand, will face a 26.2% TTI on imports, while lead or lithium batteries made in Bangladesh will enjoy a tax waiver. Locally made lithium batteries will also enjoy a VAT waiver during sale.
Charging station owners and their parts manufacturers will benefit from a 10-year tax waiver.
