Tax exemptions for renewable energy: Promise, policy, and paradox

Bangladesh's transition to renewable energy is increasingly becoming a story of contradictory policymaking. While the government publicly claims that taxes on renewable energy equipment have been waived. On the other, recent tax and customs decisions tell an entirely different story. 

Instead of making renewable energy more affordable and accessible, the latest fiscal measures have, in many cases, made clean energy technologies significantly more expensive.

The disconnect between political commitment and bureaucratic implementation raises an important question: Is Bangladesh's renewable energy agenda being undermined from within?

The confusion began on 11 June 2026, when Finance Minister Amir Khosru Mahmud Chowdhury announced in the national budget that all taxes on imported solar equipment would be waived until 2030. The objective was clear. Bangladesh spends more than Tk 200,000 crore annually on imported fossil fuels, placing enormous pressure on foreign exchange reserves. Lowering the cost of solar equipment would help reduce fuel imports, improve energy security, and accelerate private investment in renewable energy.

The announcement was welcomed across the renewable energy industry. Yet within twenty-four hours, that optimism disappeared.

A notification issued by the National Board of Revenue (NBR) effectively limited the tax benefits to Renewable Energy Service Companies (RESCOs) and Engineering, Procurement and Construction (EPC) contractors. 

In practice, this meant that only a small fraction of market participants would enjoy the incentives, while the overwhelming majority; including households, farmers, commercial establishments and small businesses, would continue paying taxes through the existing import and supply chain.

The contradiction is difficult to ignore. If a farmer wants to install a solar-powered irrigation pump to reduce diesel consumption, the equipment remains subject to significant taxes. If a family wants rooftop solar panels to lower electricity bills, they still bear the tax burden embedded in equipment prices. Yet a utility-scale developer constructing a large solar power plant receives preferential treatment.

Such a policy creates two problems simultaneously. It discourages decentralized renewable energy while creating unequal access to fiscal incentives.

Facing criticism, the Ministry of Power, Energy and Mineral Resources indicated that the policy would be revised. Around the same time, the government finalized the National Renewable Energy Development Strategy 2026–2030, which proposes reducing taxes on renewable energy equipment to around one percent and creating a more supportive fiscal environment for clean energy investment.

However, before the strategy received cabinet approval, the NBR issued another notification on 30 June. Rather than implementing a tax-free regime, it replaced the exemption with a two-percent duty while retaining conditions that still exclude most importers and consumers.

The result is a policy framework where different government institutions appear to be pursuing entirely different objectives.

The practical consequences are significant.

Nearly 90 percent of Bangladesh's renewable energy equipment is supplied through local importers. Ordinary consumers do not import solar panels, inverters or batteries directly from overseas; they purchase them from local distributors. Therefore, unless importers receive meaningful tax relief, the final price paid by consumers cannot fall.

Instead, some products have become even more expensive. One notable example is solar inverters. Under the revised notification, the applicable HS code has changed, increasing import duties from roughly 28 percent to 38 percent. Combined with weight-based taxation, the effective tax burden on certain imported solar equipment now exceeds 60 percent.

Calling such a framework a tax exemption is difficult to justify. Even the beneficiaries identified by the NBR are discovering that the incentives exist more on paper than in practice.

Although RESCOs and EPC contractors are said to receive preferential treatment, they still face 15% VAT and 2% Advance Income Tax. When additional duties are included, the effective tax burden reaches nearly 40 percent in many cases.

Battery storage presents an even greater concern.

Battery Energy Storage Systems (BESS) will become indispensable as Bangladesh increases the share of intermittent renewable electricity. Yet batteries remain largely outside the revised incentive structure. Industry sources report that importing US$30,000 worth of lithium-ion batteries recently required payment of approximately Tk 1.15 million in duties and taxes, representing almost 64% of the product's value.

Such costs discourage investment not only in batteries but also in hybrid solar systems, residential energy storage, and future grid flexibility. Ironically, this outcome contradicts the government's own long-term strategy.

The newly approved National Renewable Energy Development Strategy envisions equal fiscal incentives for all renewable energy users, subject to certification by the Sustainable and Renewable Energy Development Authority (SREDA). That approach recognizes a basic economic reality: if clean energy is to become mainstream, incentives must benefit the entire market rather than a handful of large developers.

The principle is straightforward. Tax relief must begin at the first point of the supply chain—the import stage. Otherwise, every additional duty imposed on importers eventually appears in the price paid by households, farmers and businesses.

Bangladesh cannot simultaneously claim to promote renewable energy while maintaining one of the region's highest effective tax burdens on essential clean-energy technologies.

The country stands at a critical moment. Rising fossil fuel imports continue to strain public finances, while solar power has become one of the world's cheapest sources of electricity. Every additional rooftop solar installation, irrigation pump, battery system or commercial solar project reduces future dependence on imported fuel and strengthens energy security.

If bureaucratic inconsistencies continue to dilute political commitments, Bangladesh risks sacrificing billions of dollars in potential fuel savings in exchange for relatively modest tax revenues.

What the renewable energy sector needs is not another revised notification. It needs policy coherence. The Finance Ministry, the Ministry of Power, Energy and Mineral Resources, SREDA and the National Board of Revenue must pursue the same objective with the same set of incentives. Otherwise, Bangladesh's renewable energy transition risks becoming another case where ambitious promises are defeated by conflicting implementation.

The author works at an international development organisation. He can be reached at mandalcenter18@gmail.com.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.