Vehicle Ownership Taxes
- Summary
- Taxonomy & description
- First principles assessment
- Evidence on performance
- Policy contribution
- References
Vehicle ownership taxation (an indirect tax) has two key purposes. Firstly, as a general revenue generator - income is rarely hypothecated. Secondly, to regulate the number of vehicles owned and potentially the age of the vehicle stock to meet environmental objectives.
Above and beyond a basic level of purchase tax, vehicle ownership tax is levied to constrain "growth of the motor vehicle population at a predetermined annual rate" (Phang & Asher, 1997). This rate is based on the percentage of expected growth that is deemed tolerable, and scrapage rates for that year, where they too are dictated. Vehilce ownership taxation is generally applied on a national basis. The desire to control growth in car ownership stems from the need to minimise congestion and other associated negative impacts of car use. Vehicle ownership taxes are based on an assumption that everybody will travel by car unless they are prevented from doing so.
Demand impacts can be substantial and contribute positively to a number of key policy objectives. Whilst impacts are incremental, some can be significant even in the short term.
It is worth noting that as ownership taxes form part of the fixed outlay necessary to purchase a vehicle, they may encourage drivers to drive more to obtain value for money if that outlay is particularly high, and usage costs are not prohibitive.
Terminology
Vehicle ownership taxation (an indirect tax) has two key purposes. Firstly, as a general revenue generator - income is rarely hypothecated. Secondly, to regulate the number of vehicles owned and potentially the age of the vehicle stock to meet environmental objectives.
Technology
Assuming means of collecting indirect taxes are in place, there are no specific technological requirements.
Why introduce vehicle ownership taxes?
Above and beyond a basic level of purchase tax, vehicle ownership tax is levied to constrain growth of the motor vehicle population at a predetermined annual rate (Phang & Asher, 1997). This rate is based on the percentage of expected growth that is deemed tolerable, and scrapage rates for that year, where they too are dictated. (It is possible to dictate that vehilces are srapped after x years through licencing and taxation schemes. This is done to ensure that individuals do not automatically own a car for life after their first purchase, and to make sure that the vehilces on the road have reasonably up to date pollution control, and possibly pricing, technology.) Vehilce ownership taxation is generally applied on a national basis. The desire to control growth in car ownership stems from the need to minimise congestion and other associated negative impacts of car use. Control of car ownership levels is generally only considered in the most extreme cases, where other demand management policy instruments have failed to adequately control car use. Vehicle ownership taxes are based on an assumption that everybody will travel by car unless they are prevented from doing so.
It is also worth noting that as ownership taxes form part of the fixed outlay necessary to purchase a vehicle, they may encourage drivers to drive more to obtain value for money if that outlay is particularly high, and usage costs are not prohibitive.
Demand impacts
Responses and situations | ||
Response | Reduction in road traffic | Expected in situations |
- | ||
- | ||
- | ||
- | ||
Where vehicle scrappage after x years is part of the system, and purchase tax (for a replacement vehcile) has become prohibitive. | ||
Where taxation forms part of a quota system that specifies duration of ownership. | ||
Assuming the taxation is applied on a national basis. |
= Weakest possible response | = Strongest possible positive response | ||
= Weakest possible negative response | = Strongest possible negative response | ||
= No response |
Short and long run demand responses
The responses in this table are based on an ownership tax that at least keeps pace with annual inflation and does not have any associated scrappage or duration of ownership controls. It is also assumed that usage costs are high enough to prevent drivers from driving as much as possible to obtain "value for money" from the initial purchase outlay. Further to this, responses over time are based on would be drivers not entering the car market and existing owners not replacing old vehicles that need to be scrapped due to prohibitive vehicle ownership tax levels.
Demand responses | |||||
Response | - | 1st year | 2-4 years | 5 years | 10+ years |
- | |||||
- | |||||
Change job location | |||||
- | Shop elsewhere | ||||
Compress working week | |||||
- | Trip chain | ||||
- | Work from home | ||||
- | Shop from home | ||||
Ride share | |||||
- | Public transport | ||||
- | Walk/cycle | ||||
- | |||||
- |
= Weakest possible response | = Strongest possible positive response | ||
= Weakest possible negative response | = Strongest possible negative response | ||
= No response |
Supply impacts
Where vehicle ownership tax constrains ownership levels below the market level, supply will fall to be in line with demand.
Financing requirements
There are no financing requirements assuming that means of collecting indirect taxes are in place.
Expected impact on key policy objectives
Contribution to objectives | ||
Objective |
Scale of contribution |
Comment |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation. | ||
Where reductions in congestion result from the tax. | ||
Where reductions in congestion and pollution result from the tax. | ||
Those with a low income will be most affected by an ownership tax. | ||
Where reductions in traffic levels result from the tax. | ||
Where reductions in congestion result from the tax. | ||
- |
= Weakest possible positive contribution | = Strongest possible positive contribution | ||
= Weakest possible negative contribution | = Strongest possible negative contribution | ||
= No contribution |
Expected impact on problems
Contribution to alleviation of key problems | ||
Problem |
Scale of contribution |
Comment |
Congestion-related delay |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation. | |
Congestion-related unreliability |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation. | |
Community severence |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation. | |
Visual intrusion |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation, and less road building is undertaken. | |
Lack of amenity |
- | |
Global warming |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation. | |
Local air pollution |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation. | |
Noise |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation. | |
Reduction of green space |
Where the vehicle tax controls growth of the vehicle stock to the extent that less road building is required. | |
Damage to environmentally sensitive sites |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation, and less road building is required. | |
Poor accessibility for those without a car and those with mobility impairments |
- | |
Disproportionate disadvantaging of particular social or geographic groups |
Those on low incomes will be most affected. | |
Number, severity and risk of accidents |
Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation. | |
Suppression of the potential for economic activity in the area |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation. |
= Weakest possible positive contribution | = Strongest possible positive contribution | ||
= Weakest possible negative contribution | = Strongest possible negative contribution | ||
= No contribution |
Expected winners and losers
Winners and losers | ||
Group |
Winners/Losers |
Comment |
Large scale freight and commercial traffic |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation. | |
Small businesses |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation. | |
High income car-users |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation. | |
People with a low income | Those on a low income will be affected most. | |
People with poor access to public transport |
||
All existing public transport users |
- | |
People living adjacent to the area targeted |
- | |
People making high value, important journeys |
Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation. | |
The average car user |
= Weakest possible benefit | = Strongest possible positive benefit | ||
= Weakest possible negative benefit | = Strongest possible negative benefit | ||
= Neither wins nor loses |
Barriers to implementation
Scale of barriers | ||
Barrier | Scale | Comment |
Legal | National taxes pose no problems, but local variants may require legislation. | |
Finance | Raises revenue. | |
Governance | Complex coordination needed between national and local government and between adjacent authorities, particularly to avoid spill over effects. | |
Political acceptability | Highly contentious, given expected serious opposition by car owners and suppliers. | |
Public and stakeholder acceptability | Any increase in the costs of motoring is seen as very unpopular. | |
Technical feasibility | May require local licensing and enforcement systems. |
= Minimal barrier | = Most significant barrier |
Singapore
The material cited here is taken from May AD (2002), Singapore: The Development of a World Class Transport System, Transport Reviews, forthcoming; and Phang S-Y and Asher MG (1997), Recent Developments in singapore's Motor Vehicle Policies, Journal of Transport Economics and Policy, 31(2), pp 211-220.
Contribution to objectives and problems | |
Objective | Singapore |
= Weakest possible positive contribution | = Strongest possible positive contribution | ||
= Weakest possible negative contribution | = Strongest possible negative contribution | ||
= No contribution |
Contribution to alleviation of key problems | |
Problem | Singapore |
Congestion-related delay | |
Congestion-related unreliability | |
Community severance | |
Visual intrusion | |
Lack of amenity | |
Global warming | |
Local air pollution | |
Noise | |
Reduction of green space | |
Damage to environmentally sensitive sites | |
Poor accessibility for those without a car and those with mobility impairments | |
Disproportionate disadvantaging of particular social or geographic groups | |
Number, severity and risk of accidents | |
Suppression of the potential for economic activity in the area |
= Weakest possible positive contribution | = Strongest possible positive contribution | ||
= Weakest possible negative contribution | = Strongest possible negative contribution | ||
= No contribution |
Appropriate contexts
As vehilce ownership taxes are applied on a national basis they are applicable to all areas. However, it should be noted that those least able to use alternatives due to density of land use will be penalised more than others by the tax.
Adverse side-effects
There are two potential adverse side effects that could result from vehilce ownership taxes. Firstly, owners may feel they should drive as much as possible given the high ownership costs. In Singapore average annual mileage per person exceeds that in the US. Secondly, those on low incomes for whom car ownership and use is essential will by unfairly penalised.
May AD (2002) Singapore: The Development of a World Class Transport System. In Press.
Phang, S-Y and Asher, MG (1997) Recent Developments in singapore�s Motor Vehicle Policies. Journal of Transport Economics and Policy, 37(2).