The Centre for Policy Dialogue (CPD) on Wednesday said the proposed national budget for FY2026-27 has taken several commendable steps to promote renewable energy, but fossil fuels continue to enjoy discriminatory fiscal advantages that risk undermining the country's energy transition goals.

CPD Research Director Khondaker Golam Moazzem chaired a presentation event at its Dhanmondi office where Senior Research Associate Helen Mashiyat Preoty presented the paper titled "Proposed National Budget for FY2026-27: What is there on the Power and Energy Sector?"

The Ministry of Power, Energy and Mineral Resources (MoPEMR) received a total allocation of Tk 17,345 crore in the proposed budget, a modest 2.3 percent increase from the revised budget of FY2025-26. Of this, the development budget stands at Tk 17,193 crore, while operational expenditure is Tk 152 crore, up 7.8 percent.

However, the think-tank flagged a worrying downward trend, the sector's share in the total national budget has declined steadily from 6.87 percent in FY2015-16 to just 1.85 percent in the proposed FY2026-27 budget.

The Power Division received Tk 14,996 crore, a 3.9 percent decline from the revised allocation, while the Energy and Mineral Resources Division saw a sharp 72 percent jump to Tk 2,349 crore, driven largely by increased development expenditure.

CPD acknowledged that for the first time, the proposed budget has offered substantial fiscal support to solar-based electricity generation. The government has proposed a zero percent tax rate on the solar power sector until 2035, a 5 percent tax rebate for consumers paying solar electricity bills, and elimination of import duty, regulatory duty, supplementary duty, and advance tax on essential solar components up to June 2030.

Tax incidence on assembled solar panels has been proposed to drop from 28.7 percent to 22.2 percent, while that on lithium-ion batteries, critical for energy storage, is set to come down sharply from 61.8 percent to 26.3 percent.

However, CPD cautioned that the benefits are tied to a restrictive list of conditionalities, primarily benefitting select solar power generation companies and firms operating under the RESCO model. This effectively excludes 63 percent of the country's electricity consumers, including residential users, small business owners, and rural solar irrigation farmers.

“The proposed budget will encourage the private sector to move towards renewable energy transition, however, restructuring the fiscal treatment may be needed for end-user benefits,” the paper noted.

Despite the government's stated ambition to reduce dependence on imported fossil fuels, CPD pointed out that LNG imports continue to enjoy full VAT exemption, resulting in a Total Tax Incidence (TTI) of only 9.5 percent for key LNG products. Coal imports by power plants will also continue to enjoy concessionary duty benefits extended until June 2030.

CPD recommended that the full VAT exemption on LNG be withdrawn and VAT be restored to 15 percent, arguing that the current arrangement artificially keeps LNG competitive and causes significant revenue foregone for the National Board of Revenue (NBR).

The think-tank also raised concern over the budget speech's renewed emphasis on domestic coal exploration, including setting a production target of 6 lakh metric tonnes for FY2026-27 and undertaking new projects for the Barapukuria Second Phase and Dighipara Coal Field.

“Such fiscal favours given to dirty coal is nothing but a hindrance towards energy transition,” the paper stated.

Analysing the Annual Development Programme (ADP) for FY2026-27, CPD found that fossil fuel projects account for 98 percent of total generation-sector allocations, compared to a mere 2 percent for renewable energy projects.

In the current ADP, only five renewable energy-related projects received allocations, three under the Power Division and two under the Energy Division. Notably, no new solar or renewable energy projects have been added in the current ADP, a development CPD described as concerning.

Eleven renewable energy projects were left unapproved, including seven solar projects with a combined capacity of 640 MW, three grid modernisation projects, and a 25 MWh Battery Energy Storage System (BESS) pilot project.

CPD warned this trajectory makes the government's target of achieving 20 percent renewable energy by 2030 extremely difficult, as it would require installing 1,662 MW of solar capacity per annum between January 2026 and December 2030.

CPD flagged that grid and transmission equipment continues to face some of the highest tax burdens in the energy sector, with TTI ranging from 33.6 percent to as high as 93.2 percent. The budget has proposed tariff reductions for only two components out of the full range of grid infrastructure items.

Critical assets such as transformers, conductors, towers, and meters remain subject to multiple layers of taxation. The think-tank urged the government to reduce import, customs, supplementary, and regulatory duties on all grid infrastructure components to zero, noting that doing so would lower the TTI by roughly 30 percentage points and reduce the cost of grid expansion needed for renewable integration.

The budget has significantly reduced the tax burden on electric vehicles (EVs), with import duties reduced from 93 percent to 64-80 percent depending on vehicle price and type. Import duties on EV charging equipment have been brought down from 39.75 percent to zero, a move CPD described as highly ommendable.

Annual income taxes on EVs have also been drastically reduced from Tk 2 lakh uniformly to between Tk 25,000 and Tk 1 lakh based on power capacity.

Conversely, taxes on internal combustion engine (ICE) vehicles have been increased to discourage their use, with one category of reconditioned cars now facing a TTI of 159.8 percent.

CPD expressed disappointment that the budget has given little emphasis to solar irrigation for marginal farmers. The budget speech only mentions the installation of 98 solar-powered irrigation pumps and 27 solar-powered dug-wells. One solar irrigation project with a 40 percent completion rate received no allocation in the current ADP.

“There is nothing much for solar irrigation in the proposed national budget FY2026-27,” the paper concluded.

The budget proposes Tk 37,000 crore for electricity subsidy, up from Tk 36,000 crore in the revised FY2026 budget, primarily to offset Bangladesh Power Development Board's losses from purchasing electricity from IPPs, rental, and quick rental plants. CPD warned that while the government has signalled plans to rationalise electricity subsidies in coming years, the burden must not be passed on to consumers through tariff hikes. Instead, the government should phase out capacity payments to fossil fuel plants.

CPD called on the government to increase allocations in the revised budget for projects nearing completion; approve more renewable energy projects through the revised ADP; shift NBR's fiscal approach from a restrictive entity-based model to an open, component-based zero-tariff framework; introduce targeted subsidies for solar irrigation farmers; and incorporate dedicated green grants for energy transition and smart grid development in the national budget.

“We deeply appreciate the government for taking necessary fiscal and budgetary measures to promote renewable energy. However, the discriminatory fiscal treatment still persists, which is why tariff rationalisation for all renewable energy sources, storage components, and grid modernisation equipment is needed,” CPD said.