The Government is preparing to introduce a dedicated legal framework to provide targeted tax incentives for renewable energy projects, as Bhutan seeks to accelerate investment in clean energy infrastructure and achieve its ambitious goal of generating 25 gigawatts (GW) of renewable energy capacity.
The proposed Renewable Energy Tax Exemption Bill of Bhutan 2026 aims to establish a transparent, time-bound and accountable system for granting tax exemptions to approved renewable energy activities while safeguarding public revenue through strict compliance and monitoring mechanisms.
According to the Bill, renewable energy has been identified as a strategic national resource critical for sustaining Bhutan’s long-term socio-economic development, strengthening energy security, and supporting environmentally sustainable growth.
Under the proposed law, approved renewable energy projects will be eligible for exemptions from several indirect taxes, including Customs Duty, Excise Tax and Goods and Services Tax (GST).
The exemptions will apply only to goods and services that are directly and exclusively attributable to the construction, installation and establishment of approved renewable energy activities.
The Bill also provides for exemptions from Property Ownership Transfer Tax in specific circumstances involving the transfer of renewable energy assets between the Government and approved project entities. The legislation specifically excludes general administrative expenses, residential facilities, operational expenditures and other ancillary costs that are not directly related to renewable energy project development.
To strengthen transparency and accountability, the Bill establishes a two-stage approval mechanism.
Under the framework, renewable energy projects must first obtain approval from the designated responsible Ministry, which will assess and certify the nature and scope of the proposed activity.
However, such approval alone will not automatically entitle a project to tax benefits. Project developers will subsequently be required to apply separately to the Ministry of Finance (MoF) for tax exemptions, which will be granted only for qualifying direct inputs that meet the eligibility requirements set out in the law.
The Bill further stipulates that all exemptions will be time-bound and limited to the project development phase. Tax benefits will cease once commercial operations begin, ensuring that the incentives remain focused on supporting capital investment rather than ongoing business operations.
Recognizing the potential risks associated with tax exemptions, the proposed legislation includes extensive monitoring, audit and enforcement provisions. Approved entities will be required to maintain detailed records and comply with reporting obligations throughout the exemption period.
The MoF will be empowered to conduct audits, post-clearance verification and compliance reviews to ensure that exemptions are being used appropriately.
The Bill also incorporates robust anti-avoidance provisions allowing authorities to disregard or modify transactions or arrangements entered into primarily for the purpose of obtaining improper tax benefits.
In addition, the legislation establishes a dedicated framework to address the diversion of imported duty-exempt goods. Any diversion, misuse or unauthorized transfer of exempted goods will attract stringent penalties, including recovery of taxes and duties, monetary fines, seizure or confiscation of goods, and potential criminal liability under applicable laws.
While the government acknowledges that the proposed exemptions will result in revenue foregone in the short term, parliamentarians argue that the incentives represent a strategic investment in Bhutan’s economic future.
Parliamentarians stated that the measure is intended to catalyze private sector participation, accelerate renewable energy infrastructure development, and generate long-term economic benefits through increased investment, employment creation and enhanced energy security.
The Bill also provides for coordination with existing laws, delegation of implementation responsibilities to the Department of Revenue and Customs (DRC), and rule-making powers to facilitate effective administration.
If adopted by Parliament, the Renewable Energy Tax Exemption Bill 2026 is expected to become a key policy instrument supporting Bhutan’s transition toward a more diversified and resilient energy sector while advancing the country’s long-term sustainability and energy security objectives.
Tashi Namgyal, Thimphu
