EVs to get major tax cuts, petrol and diesel cars to be costlier

The proposed budget for the 2026–27 fiscal year includes measures aimed at making battery-powered electric vehicles (EVs) more affordable for ordinary consumers, while increasing taxes on mid-range fossil fuel-powered vehicles.

The move represents a major policy initiative by the government to promote environmentally friendly transport and greater use of renewable energy.

The government has proposed substantial duty and tax concessions on the import of electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), related equipment and charging infrastructure. At the same time, the proposed budget includes higher taxes on the import of certain fossil fuel-dependent vehicles.

Finance Minister Amir Khasru Mahmud Chowdhury announced the measures, saying they were intended to encourage the use of environmentally friendly transport.

According to the proposed budget, the current overall tax burden on imported electric vehicles stands at around 93 per cent. The government has proposed reducing that burden.

Under the proposal, electric vehicles valued at up to USD 25,000 will face a total tax incidence of 64 per cent, while those priced at up to USD 50,000 will be subject to an 80 per cent tax rate.

To help reduce environmental pollution and strengthen energy security, the government has proposed exempting electric buses used for transporting students to educational institutions from existing duties and taxes. For other electric buses and trucks, all duties and taxes except VAT would be waived. The concession is proposed to remain in effect until June 2031.

The budget also proposes tax reductions for new plug-in hybrid electric vehicles (PHEVs). Supplementary duty on PHEVs with engine capacities of up to 2,000cc would be reduced, while regulatory duty on new PHEVs with engine capacities of up to 1,800cc would be completely withdrawn.

As a result, the total tax burden on brand-new plug-in hybrid vehicles with engine capacities of up to 1,800cc would fall from 93.16 per cent to 73.437 per cent. Similarly, the total tax burden on brand-new PHEVs with engine capacities of up to 2,000cc would decline from 132.36 per cent to 96.10 per cent.

In addition, the government has proposed reducing advance income tax on the registration and renewal of all types of electric vehicles with the Bangladesh Road Transport Authority (BRTA). Currently set at Tk 200,000, the tax would be replaced with a capacity-based tiered system.

Under the proposal, vehicles with capacities of up to 200 kilowatts would pay Tk 25,000; up to 300 kilowatts, Tk 50,000; up to 400 kilowatts, Tk 75,000; and those exceeding 400 kilowatts, Tk 100,000 in advance income tax.

To encourage the growth of the electric vehicle industry, the government has proposed withdrawing all duties and taxes on the import of EV chargers and charging station equipment.

A nationwide charging network is considered essential to ensuring the smooth operation of electric vehicles. To support this objective, the proposed budget seeks to reduce the total tax burden on chargers and charging station equipment at the import stage from 39.75 per cent to zero.

At the same time, the government has proposed increasing the tax burden on imported vehicles equipped with internal combustion (IC) engines with capacities ranging from 1,200cc to 1,600cc. The initiative is intended to discourage the use of fossil fuel-powered vehicles, which are harmful to the environment.

The current total tax burden on these vehicles stands at 132.36 per cent. The proposed budget seeks to raise it to 155.88 per cent. However, existing tax rates for the import of other categories of vehicles are proposed to remain unchanged.

The measure is aimed at discouraging the import and use of diesel-, octane- and petrol-powered vehicles while encouraging consumers to switch to environmentally friendly alternatives.

If the proposed tax increase takes effect, the market price of fossil fuel-powered vehicles is expected to rise significantly. At present, a vehicle with an import value of Tk 3 million faces a total tax burden of 132.36 per cent, bringing its market price to approximately Tk 6.971 million.

Under the new structure proposed in the budget, the price of the same vehicle would rise to an estimated Tk 7.676 million. In other words, the additional tax alone would increase the price of such vehicles by around Tk 705,000. However, the tax hike will apply only to vehicles in the 1,200cc to 1,600cc category.

The government has also proposed duty and tax exemptions to attract investment in the domestic electric vehicle manufacturing industry. A new notification will be issued to provide fiscal incentives for the production of environmentally friendly electric vehicles and the local manufacture of vehicle components as an alternative to fossil fuel-dependent transport.

Companies that achieve high levels of local value addition through the manufacture, welding, painting and assembly of four-wheeled and three-wheeled electric vehicles will be exempt from all duties and taxes on imported materials and components, except for a three per cent import duty.

Meanwhile, companies engaged in parts assembly and painting operations that generate a comparatively lower level of local value addition will be exempt from all other duties and taxes except for a 15 per cent import duty.

The budget also proposes exempting imported materials and raw materials used by domestic electric bus and truck manufacturers from all duties and taxes, apart from an additional 5 per cent VAT. These concessionary benefits are proposed to remain in force until June 2031.