RENUKA RAI | Thimphu
The Ministry of Finance (MoF) has begun implementing the Renewable Energy Tax Exemption Act of Bhutan 2026, a major policy initiative aimed at attracting investment and speeding up the development of renewable energy projects across the country.
MoF has issued a public notification on June 25 outlining the provisions of the Act, which came into force on May 15 this year. The legislation offers targeted and time-bound tax incentives to support Bhutan’s ambitious goal of achieving 25 gigawatts of renewable energy capacity.
Under the new law, approved renewable energy projects will be exempted from several indirect taxes, including Customs Duty, Excise Tax and the Goods and Services Tax (GST) on direct inputs used in the construction and establishment of projects. The Act also provides exemptions from Property Ownership Transfer Tax (POTT) for qualifying transfers related to approved renewable energy activities.
MoF says the incentives are intended to reduce the cost of developing renewable energy infrastructure and encourage greater investment in the sector at a time when Bhutan is seeking to diversify its energy portfolio and strengthen energy security.
The tax exemptions apply to a broad range of renewable energy activities involving the generation, storage, transmission, conversion and production of energy from renewable sources. These include hydropower, solar, wind, biomass, geothermal energy, biofuels and green hydrogen, as well as other renewable sources that may be designated by the Ministry of Energy and Natural Resources (MoENR) in the future.
To access the tax incentives, project developers will need to undergo a two-stage approval process.
First, an entity intending to undertake a renewable energy project must obtain recognition from the MoENR as an “Approved Activity.” The ministry’s approval confirms the nature and scope of the proposed project but does not automatically grant tax exemptions.
Following this, the entity must apply to the Department of Revenue and Customs (DRC) under the MoF for a Certificate of Approval as an “Approved Entity.” The department will assess whether the goods and services for which exemptions are being sought are direct inputs used exclusively for the approved project.
If approved, the MoF will specify the exact scope of the tax exemptions.
The MoF has also laid down strict conditions governing the use of these incentives.
The exemptions apply only to direct inputs that are physically incorporated into or exclusively used for the construction and establishment of renewable energy projects. Administrative, residential and commercial goods and services do not qualify for tax benefits.
The tax exemptions will cease once a project begins commercial operation.
Approved entities are required to maintain proper records and documentation for at least five years from the date of each transaction. In addition, goods and services obtained under the exemptions cannot be resold, transferred or disposed of without prior written approval from the MoF.
The notification warns that any unauthorized disposal of exempted goods will lead to the immediate recovery of all foregone taxes, along with applicable penalties.
The DRC has also been empowered to conduct post-clearance audits to verify compliance with the Act.
The government has taken a particularly strong stance against the diversion of imported goods obtained under tax exemptions. Such actions are classified as criminal offences under the Act and can attract penalties of up to 150 percent of the customs value of the goods, in addition to misdemeanour charges.
The MoF has also clarified that the tax incentives do not exempt project developers from complying with procedures and requirements under existing laws, including the Customs Act of Bhutan, the Excise Tax Act of Bhutan and the Goods and Services Tax Act of Bhutan.
The Renewable Energy Tax Exemption Act will remain in force until Bhutan reaches its national target of generating 25 gigawatts of renewable energy or until December 31, 2040, whichever comes earlier.
Officials say the legislation represents an important step in creating an enabling environment for renewable energy investments and positioning Bhutan as a regional leader in clean energy development.
