Karachi: Pakistan’s auto industry has expressed serious concerns following a recent decision by the Customs Classification Committee to classify range-extended electric vehicles (REEVs) as battery electric vehicles (BEVs), warning that the move could distort the market and undermine local assembly operations.
The committee placed REEVs — essentially series hybrid vehicles — under HS Code 8703.8090, the same category as BEVs, on the basis that propulsion is provided solely by an electric motor, while the onboard internal combustion engine (ICE) functions only as a generator.
However, the Pakistan Automotive Manufacturers Association (PAMA) has challenged the decision, terming it a case of misdeclaration under the Customs Act, 1969, and formally raising the issue with the Federal Board of Revenue (FBR). According to PAMA, the importer declared the vehicle under HS Code 8703.8090, which attracts 25 percent customs duty under the Fifth Schedule, whereas the exporter in China declared it under HS Code 8703.6023 — a classification applicable to hybrid vehicles carrying a 50 percent duty.
PAMA maintains that HS Code 8703.8090 applies exclusively to pure electric vehicles, while 8703.6023 covers hybrid models. The association argues that any vehicle equipped with an internal combustion engine — even if used solely as a generator — cannot be considered a zero-emission vehicle and therefore should not qualify for incentives designed for all-battery electric vehicles.
The association further noted that the inclusion of an ICE may contravene the National Electric Vehicle Policy, which restricts fiscal incentives to vehicles operating solely on onboard battery power without any combustion engine.
Industry representatives contend that the dispute involves both tariff classification and fiscal benefits. They argue that if no duty differential existed, the classification would be largely immaterial. However, given the significant gap in applicable duties, the ruling has major financial implications.
An industry source pointed out that REEVs typically feature fuel tanks of around 45 litres and, when not externally charged, produce emission levels and fuel efficiency comparable to conventional hybrids. He added that exporting countries and UNECE regulations classify REEVs as hybrids rather than pure electric vehicles. Moreover, the ICE generator reportedly constitutes at least 15 percent of the vehicle’s total value, making it structurally distinct from customary BEVs.
While the Customs Classification Committee clarified that its ruling pertains strictly to tariff classification — and acknowledged that the World Customs Organisation is expected to assign a separate HS code for REEVs by 2028 — the extension of BEV-level fiscal incentives remains a policy decision for the federal government and cabinet.
Currently, completely built-up (CBU) BEVs below 50kWh are subject to 25 percent customs duty and 12.5 percent GST. Meanwhile, completely knocked-down (CKD) BEVs benefit from reduced duties, including one percent duty on specific parts, 10 percent CKD duty, one percent GST and zero federal excise duty — incentives aimed at promoting genuine zero-emission vehicles.
Automakers have warned that extending similar concessions to REEVs could trigger a surge in low-duty REEV CBU imports, potentially undermining the economic viability of CKD operations across internal combustion engine (ICE), hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV), and BEV segments.
The classification issue has surfaced at a critical time, as consultations are underway for the Auto Policy 2026–31, which will determine future tariff structures, sales tax treatment and incentives for hybrid, plug-in hybrid, REEV and battery electric vehicles.
Industry stakeholders are now awaiting clarity from the Engineering Development Board (EDB) and the Ministry of Industries and Production, particularly as the upcoming policy framework must align with IMF commitments, secure federal cabinet approval and ensure consensus among key stakeholders.
Story by Aamir Shafaat Khan
