Reduction of Tax Incidence on Renewable Energy Equipment: Potential Implications for Bangladesh
Citation: Raihan, S., Ahmed, M. T., Ahmed, S. T., Chakraborty, A., & Mubarrat, N. (2026). Reduction of Tax Incidence on Renewable Energy Equipment: Potential Implications for Bangladesh. SANEM Publications, Dhaka, Bangladesh.
Bangladesh depends heavily on imported fossil fuels. These account for 62.5% of its primary energy supply and require nearly US$3.22 billion in annual subsidies. This reliance threatens the country’s macroeconomic stability and long-term development. Bangladesh has set ambitious renewable energy targets of 20% by 2030 and 30% by 2040 under the Renewable Energy Policy 2025. However, the Total Tax Incidence on key renewable energy components ranges from 26% to 127%. Additionally, 64% of the 87 identified renewable energy products saw tax increases in FY2025–26. These measures undermine Bangladesh’s clean energy ambitions.
This report assesses whether reducing or removing TTI on renewable energy equipment is justified and sustainable. It uses three analytical frameworks. First, it compares fiscal policies in India, China, and Germany. Next, it provides a partial equilibrium cost–benefit analysis using import demand elasticities for 13 renewable energy products. Finally, it includes a Computable General Equilibrium model based on the 2022 Bangladesh Social Accounting Matrix. This matrix covers 86 production sectors and 15 household groups.
International evidence shows that reducing tariffs is the most effective way to speed up renewable energy adoption. The partial equilibrium analysis finds that gross revenue losses vary from 22% to 44%. However, demand elasticity reduces the net fiscal cost to as little as 5% for products with high elasticity. The CGE simulation of a 100% TTI reduction shows clearly positive results: GDP rises by 0.04%, exports increase by 0.47%, consumer prices fall by 0.02%, and real household income rises by 0.08%. Rural and low-income households see progressive welfare gains. The direct fiscal cost stays modest and manageable.
The report concludes that the broad economic and social gains from reducing TTIs on renewable energy equipment far exceed the short-term revenue costs. It recommends a phased fiscal reform strategy that directly supports Bangladesh’s renewable energy targets and long-term development.