Tax on solar panels and inverters: How it hinders Bangladesh's path to a sustainable future
The national budget for 2023–24 should make allowances for renewable energy where possible to ensure a boost to this growing industry
Climate change is a major threat to human civilization, with two-thirds of global greenhouse gas emissions linked to burning fossil fuels for energy. The Intergovernmental Panel on Climate Change warns that any delay in global action on adaptation and mitigation could lead to missed opportunities for a habitable and sustainable future.
Despite contributing less than 1% of global carbon emissions, Bangladesh is one of the most climate-vulnerable countries. And without changes, it would see annual economic costs equivalent to 2% of its GDP by 2050 – widening to 9.4% by 2100.
The country is currently reliant on fossil fuels for energy, with gas being the primary source and coal accounting for almost 7% of energy.
However, the government of Bangladesh has been compelled to cancel 10 coal-based power facilities worth $12 billion due to adverse pressure on foreign exchange reserves and economic crises. The government has also spent almost Tk90,000 crores on private power companies without receiving any electricity, while the Adani coal power plant will cost Bangladesh over Tk1 lakh crore in capacity charges over the next 25 years. And power from the plant will be 56.2% more expensive than other imported power.
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Bangladesh is predicted to have an annual mortality rate of 150,000 and 55 million people impacted by climate change by 2030. Bangladesh's reliance on imported fossil fuels is not in line with global trends; and renewable energy is essential for energy security and to combat climate change.
The International Renewable Energy Agency defines renewable energy as "energy that can be used without reducing its availability in the future." Solar PV and onshore and offshore wind energy costs have dropped by up to 80% worldwide in the last decade, making renewable energy increasingly affordable.
Taking into account the aforementioned facts, the national budget for 2023–24 should make allowances for renewable energy where possible to ensure a boost to this growing industry.
Bangladesh's national budget for 2022–23 allocated $260 billion to the energy sector, but there were no funds specifically allocated to renewable energy. This means that despite its importance in ensuring energy security, it may not receive the funding it needs to reach its full potential.
By allocating funds specifically for renewable energy projects and activities, such as capacity building, research and development, and the deployment of renewable energy technology, a distinct renewable energy fund can assist in resolving this issue.
The 1% customs duty on solar panels and, more worryingly, the 37% customs duty on solar inverters have made solar very expensive for renewable energy firms working in Bangladesh.
The high duty on inverters is levied as they are categorised as "other static converters" and are not given any special consideration for being vital equipment needed for the production of solar energy. As Bangladesh does not manufacture solar inverters of the international standard, these duties do not serve as a protectionist mechanism either.
Inverters are essential for a solar-based system as they convert the solar-panel-generated DC current to AC current, which is what the power grid uses.
Organisations like the Bangladesh Solar and Renewable Energy Association (BSREA) have requested the removal of this customs duty, but so far, to no avail. The NBR should closely work with SREDA to get an updated list of renewable energy-related materials and include a new HS code for them accordingly.
Bangladesh imports a large amount of petroleum products every year, and the value of these fossil fuels was $8.9 billion in the financial year 2021–22. If the government imposes a carbon tax on these fossil fuels, it will generate a significant amount of revenue. If the NBR imposes a 10% carbon tax, the net revenue would be around $9.0 billion, which could generate approximately 1200 MW of power from solar sources.
In light of the problems discussed above, the IMF-provided fund to Bangladesh has an opportunity to make a difference in the energy sector. The IMF's RSF should be equally used for prioritised adaptation actions and renewable energy expansion to ease fiscal burdens and provide sustainable energy sources at affordable tariffs.
To conclude, Bangladesh's national budget should be aligned with plans like the Mujib Climate Prosperity Plan and the Delta 2100 and therefore should remove duties on solar panels and inverters. Although the nation has set aside a sizable amount of money for the energy industry in the previous budget, renewable energy must receive its fair share to ensure a sustainable future.
The establishment of a separate renewable energy fund and the elimination of customs taxes on solar panels and solar inverters can significantly increase Bangladesh's output of renewable energy. Carbon taxation can be beneficial as well.
M Zakir Hossain Khan is a climate and renewable energy finance expert.
Simran Nova Siddique is a Research Assistant at Change Initiative.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
