With a review of the Carbon Emissions-Based Vehicle Scheme (CEVS) under way, it is worth exploring the broader topic of private vehicle taxation policies in Singapore and how the current system may be enhanced.
In land-scarce Singapore, taxes are formulated to control the demand for vehicles so as not to place undue strain on the road infrastructure. Beyond the tangible costs of vehicle usage, taxes also seek to mitigate socio-environmental impacts such as congestion and pollution.
Introduced in 1990, the Certificate of Entitlement (COE) system was recently updated to include a criterion on power output in the classification of vehicles. The Additional Registration Fee (ARF) structure was revised in 2013, making it a progressive model with premium vehicles subject to a greater proportion of taxes. In the same year, the CEVS replaced the Green Vehicle Rebate (GVR), where road tax was the mainstay in the system.
Taxes and their rationales
All of the policy tools mentioned above add to the ownership cost of a vehicle, whilst Electronic Road Pricing (ERP) relates to the usage cost. COE, ARF, CEVS and road tax can be considered as fixed costs as they have no relation to how much mileage a vehicle chalks up within its registration lifespan. Hence, owners would naturally want to maximise their investments by driving often, as long as they can afford other usage costs such as ERP, fuel and parking. As much as the ownership of a car impacts resource use in the need to cater for parking spaces, the more pertinent component is perhaps the actual driving of a car, which contributes to congestion and emissions.
With this in mind, it may be worthwhile to consider the actual carbon contribution of a 100 g/km car (which qualifies for a $20,000 rebate) being used for 300 days a year against a 250 g/km car (subject to a $10,000 surcharge) driven for 100 days per year with the same daily mileage. Current policies do not reflect this accurately. Looking ahead, policies need to shift the emphasis from ownership to usage, and the next generation satellite-based ERP (ERP-2) represents an opportunity to integrate these characteristics on top of trip characteristics such as distance, location and time of day.
COE acts as the gatekeeper in private vehicle ownership, allowing the authorities to manage the vehicle population by releasing a pre-determined quota for each bidding exercise. Vehicles are categorised according to engine capacity and power output. There is an element of social equity in that buyers of premium cars usually have to bid higher than buyers of smaller cars, given the lower quota available for the former, although the primary reason for this lower quota stems from the larger footprint of cars in the ‘premium’ category. Road tax, which is payable every six months, is more precise in that it is based solely on engine capacity.
The ARF, pegged at over 100% of the Open Market Value (OMV) of the car, was introduced to dampen demand for cars by increasing the actual purchase price, with the revision last year seen as a means to enhance equity. Finally, the CEVS is a carrot-and-stick policy to encourage owners to select vehicles with lower carbon emissions. Although not considered to be a form of taxation, the tightening of financial regulations to restrict the loan amount and repayment duration in 2013 sought to promote financial prudence by making ownership less accessible for owners who required large loans to finance the purchase of a vehicle.
How effective are they?
Together, COE and ARF have been instrumental in financially deterring people from vehicle ownership, given that Singapore is known as one of the most expensive places to buy a car. Apart from the boom in registrations from 2005 to 2009, the COE system has been largely effective in managing vehicle population growth. However, hybrid and electric cars are an uncommon sight on the road, with the higher price tags of these environmental-friendly vehicles forming a hurdle. In that sense, the CEVS, which succeeded the GVR, has much to do. With nearly 60 per cent of new vehicles qualifying for rebates as reported in The Straits Times, the system is too inclusive[1]. In the UK, a report from the Society of Motor Manufacturers and Traders revealed that the average carbon emission for a new car is 128.3 g/km, yet Singapore is still handing out rebates for vehicles up to 160 g/km. Besides, not enough is being done to distinguish ultra-low emission vehicles such as plug-in hybrids, as well as zero-emission electric vehicles, from their internal combustion engine counterparts.
Too complex?
Because the CEVS and ARF are linked to the Preferential Additional Registration Fee (PARF) rebate owners receive when they de-register their vehicles, the actual value of any rebates or surcharges are not always clearly understood. For example, owners may be tempted by a $20,000 CEVS discount at the time of purchase, but fail to realise that they would actually receive a smaller PARF rebate at the end of the registration lifespan. Could we simplify this? In its current form, the PARF rebate system supports early de-registration of vehicles, since it decreases yearly between the fifth and tenth year of vehicle age. With COE prices increasing in recent times[2], many owners find it more worthwhile to hold on to their cars, undermining this. An alternative would be to tie road tax to vehicle age, like how it is being done for vehicles older than 10 years.
Looking to the future
Even as ERP-2 is set to price road usage more precisely, ownership-based taxes remain relevant. More can be done to encourage judicious consumption by nudging owners towards vehicles with smaller environmental footprints, such as fully electric cars. It is also important for policymakers to get the formula right without constant revision, given that owners are locked into their purchases. Nevertheless, some degree of flexibility must exist to keep in line with the latest vehicle trends. Above all, the authorities should ensure that consumers have strong commuting options — taxis and public transport lower demand for cars. For people who require a car to run errands, they could consider car-sharing since it does not require as large an upfront financial commitment as ownership. And those who prefer the comfort and status of having their own vehicles would have to pay slightly more than those using public transport to offset their larger travel footprint. Concluding, one can expect updates on the CEVS to be announced soon, as the scheme is set to run till the end of 2014.
Leonard Chew has recently completed his Masters in Transport and City Planning at the University College London with a dissertation about car-sharing.
Photo credit: Author’s own
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[1] See clarification from LTA: http://www.straitstimes.com/premium/forum-letters/story/cost-green-car-scheme-lta-replies-20140821
[2] COE premiums have fluctuated slightly over the past year, though at between $60,000 to $70,000, they are comparatively higher compared to a decade ago when $30,000 COEs were the norm.