SANEM says Bangladesh’s 2026-27 budget signals support for solar power and electric vehicles, but limited renewable allocations and continued fossil fuel backing could weaken the country’s energy transition.
The South Asian Network on Economic Modeling, or SANEM, has voiced concern over what it described as a mismatch in Bangladesh’s 2026-27 national budget between support for renewable energy expansion, the incentive structure and parallel investment in fossil fuels.
The group said that although energy security has been declared one of the country’s 10 strategic priorities, only 1.85 percent of the total budget, or 173.45 billion taka, has been allocated to the Power, Energy and Mineral Resources Ministry. That is lower than the 2.15 percent share in the revised budget for fiscal year 2025-26.
In its analysis, SANEM said the government is continuing large-scale financial support for the energy sector in the coming fiscal year to maintain stability and settle accumulated liabilities. The budget allocates 360 billion taka in subsidies to the Bangladesh Power Development Board and 310.16 billion taka for gas and other sectors. Of the ministry’s total allocation, the Power Division received 149.96 billion taka while the Energy and Mineral Resources Division received 23.49 billion taka.
Although the allocation for the Energy and Mineral Resources Division rose by 71.96 percent from the revised budget of the previous year, SANEM said the gap between the Power Division and the energy division still stands at 84.34 percent.
The organization said that amid ongoing global geopolitical tensions, the Energy and Mineral Resources Division’s allocation should be increased further and the gap between the two divisions should be gradually reduced to strengthen the resilience of the energy sector.
SANEM said rising dependence on imported liquefied natural gas has driven up electricity generation costs. It also pointed to the Israel-US-Iran conflict as a source of potential disruption to global fossil fuel supplies. Against that backdrop, the government has set targets to generate 20 percent of electricity from renewable sources by 2030 and 30 to 50 percent by 2050. To speed up that transition, the 2026-27 budget for the first time places special emphasis on solar power and electric vehicles through a series of tariff and tax measures.
For the solar sector, the government has proposed a zero percent tax rate on solar power generation until 2035. Consumers will also receive a 5 percent tax rebate on solar electricity bills. Import duty, regulatory duty, supplementary duty and advance tax on necessary solar equipment have been reduced to zero until June 2031. However, to encourage domestic manufacturing, those duty benefits will be withdrawn after June 2028 for items such as mounting structures, lithium cells, battery packs and battery energy storage systems.
For electric vehicles, the tax burden on imported EVs priced up to 25,000 US dollars has been cut from 93 percent to 64 percent. For vehicles priced between 25,000 and 50,000 dollars, the tax has been reduced from 93 percent to 80 percent. Plug-in hybrid electric vehicles have also been brought under the incentive package, with tax rates lowered from 93-132 percent to 73-96 percent depending on engine size.
To support infrastructure development, all taxes on EV chargers and charging station equipment have been withdrawn. Advance income tax on all types of EVs has also been sharply reduced from 200,000 taka to 25,000 taka, 50,000 taka, 75,000 taka and 100,000 taka for vehicles with capacities of 200 kilowatts, 300 kilowatts, 400 kilowatts and above 400 kilowatts respectively. By contrast, the tax on conventional internal combustion engine vehicles with engine sizes between 1,200 cc and 1,600 cc has been raised from 132 percent to 156 percent, which SANEM said signals a clear policy shift away from fossil fuel-based transport.
Even while welcoming those measures, SANEM expressed concern over several issues. It said that although the budget sends its strongest message in favor of solar energy, a review of the detailed development budget shows that only 0.1 percent of the Power Division’s total development budget has been allocated to the Sustainable and Renewable Energy Development Authority.
It also said that spending earmarked exclusively for renewable energy projects in fiscal year 2026-27 accounts for only 2.53 percent of the Power Division’s total development expenditure.
SANEM further noted that under a recent order by the National Board of Revenue, the tax and duty benefits are largely limited to VAT-compliant self-consumption producers and projects run under the Renewable Energy Service Company model through power purchase agreements. As a result, many importers, distributors, engineering procurement and construction firms and residential and commercial users operating through self-financing remain outside the scope of those benefits.
At the same time, the budget offers no financial incentives for wind power and makes no direct provision for solar irrigation or solar street lighting, both of which SANEM described as crucial for reducing diesel use.
The group said the budget calls for expanding renewable energy and cutting carbon emissions, yet also includes measures that could deepen the country’s long-term dependence on fossil fuels. These include an ambitious target to extract 600,000 metric tons of coal, the launch of 74 new projects at Barapukuria and Dighipara and an extension of duty benefits on coal imports until 2030.
It also referred to the plan to build the second Eastern Refinery, known as ERL-2, which would add annual crude oil refining capacity of 3 million metric tons.
SANEM said the government’s plans to establish a strategic fuel reserve system and initiatives to cut spending on LNG imports are commendable from the perspective of national energy security and supply stability. But it cautioned that such steps should be used only as temporary or emergency measures and should not create a new pathway for increased long-term dependence on fossil fuels.
To strengthen energy security, crisis resilience and the shift to renewable energy, SANEM put forward a set of recommendations.
These include reversing the long-standing trend of low allocation to the energy sector, effectively implementing gas exploration onshore and offshore, ensuring greater allocations for renewable energy projects in the Annual Development Programme, shifting part of fossil fuel subsidies to renewable energy and transforming the Sustainable and Renewable Energy Development Authority into an effective one-stop green energy hub.
It also recommended opening zero percent tax and duty benefits to the entire solar value chain, replacing the country’s nearly 1.7 million diesel-powered pumps with solar irrigation pumps, providing direct financial support for solar street lighting, extending duty waivers on raw materials for domestic battery production for at least 10 more years beyond 2028 and introducing special financial, policy and strategic support for the wind power sector.
