Vehicle Ownership Taxes

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.

Context

Increases in vehicle ownership taxation have been introduced in Singapore to complement usage charges. As usage charges have become more widespread and sophisticated, the amount of vehicle ownership taxation has been reduced to gradually transfer the majority of transport pricing to point of use.

The first increases in ownership taxes were introduced in 1972, with subsequent increments (in various forms) over the following two decades. These are outlined in Early Vehicle Ownership Taxes in Singapore.

Early Vehilce Ownership Taxes in Singapore

Year

Tax

Level

1972

Import duties

Increased from 10% of open market value (OMV) - 1968 level - to 45%

?

Additional registration fee

Introduced at10% of OMV

1976

Additional registration fee

Increased to 100% of OMV

1980

Basic registration fee

Increased from S$15 to S$1000

1980

Additional registration fee

Increased to 150% of OMV

1983

Additional registration fee

Increased to 175% of OMV

1985

Annual road tax

Increased from 10c/cc - 1972 level - to between 60c and 150c/cc depending on engine size.

Source: May (2002).

Despite these taxes vehicle ownership was increasing by 7% per annum throughout the 1980s, and despite usage charges such as urban road charging, parking charges and fuel tax, car owners still tended towards car use as their dominante mode of transport. This resulted in significant congestion and pollution problems. Road user charges could not immediately be raised sufficiently, or applied to all roads for equity and visual intrusion (of electronic pricing gantries) reasons. Consequently, a vehicle quota system (VQS) was introduced in 1990.

Vehicle Quota SystemThe VQS was designed to limit growth in ownership to 3%pa and involved setting a quota for the number of vehicles which could be purchased in any month in each of seven categories. Would-be purchasers placed bids for a certificate of entitlement (COE) [at monthly auctions facilitated through ATMs.] the cost of the COE for any category in any month was set at the level of the last bid which could be included in the quota. The COE is valid for ten years, and can then be extended for five ot ten years at the then current rate, after which the vehicle has to be scrapped. It can also be traded in if the vehicle is scrapped within the first ten years (May, 2002).

The cost of a COE and other vehicle ownership taxes in 1997 are shown in Vehicle Ownership Taxes in 1997.

Vehicle Ownership Taxes in 1997

Customs Duty

41% of OMV (Cost Insurance Freight (CIF), handling and other incidental charges paid)

Goods and Services Tax

3% of CIF + customs duty payable

Registration Fee:

S$1,000 for private registration; S$5,000 for company registration

Additional registration

150% of OMV for private registered cars

300% of OMV for company registered cars

Certificate of Entitlement (nb prices vary monthly, March 1997 prices quoted)

Type of Vehicle

Registration of new vehicles (S$)

Prevailing quota premium* (S$)

Highest COE prices (S$)

Small cars (1,000 cc or less)

27,220

21,446

31,246 (Nov 94)

Mid-size cars (1,001 to 1,600cc)

45,008

44,855

58,600 (nov 94)

Big cars (1,601 to 2,000cc)

53,000

49,442

95,100 (Nov 94)

Luxury cars (2,001 cc or more)

60,888

51,031

110,500 (Dec 94)

Goods vehicles and buses

30,610

29,602

39,000 (Dec 94)

Motorcycles

3,350

2,808

4,202 (Dec 95)

Open category**

60,810

n/a

105,000 (Nov 94)

*the prevailing quota premium is the average of quota premiums over the past twelve months. The owner of a ten year of vehicle who wants it to remain on the road for another ten years has to pay the prevailing quota premium. The fee is halved for five year extensions.

**An open category COE can be used to purchase any kind of vehicle. It can be converted to a motorcycle licence for one third of the quota premium. Company registerd cars and heavy vehicles pay double the quota premiums.

Annual Road Tax (S$ per cc)

1,000 cc and below

S$0.70

1,001 to 1,600 cc

S$0.90

1,601 to 2,000 cc

S$1.05

2,001 to 3,000 cc

S$1.25

Above 3,000 cc

S$1.75

The road tax for a company registered car is twice the above rates, which are for private registered cars. for a diesel powered car, a diesel tax whioch is six times the road tax of a similar petrol driven vehicle is payable. Off-peak cars enjoy a flat S$800 discount subject to a minimum road tax payment of S$50. Between May 1997 and april 1998, the government will give road tax rebates of S$20 for motorcycles, S$10 for weekend and off-peak cars, and S$60 for cars and other types of vehicle, to cushion the impact of introducing the RPS on two expressways.

Surcharge on Imported Used Cars

S$10,000 (imported used cars must be under three years old)

Registration fee rebate for Off-Peak Cars (only used at off peak times)

S$17,000

Preferential Additional Registration Fee (PARF) benefit for deregistering (scrapping or expeorting) a car under ten years

Age of vehicle at Deregistration

 

Below 5 years

130% OMV

Between 5 and 6 years

120% OMV

Between 6 and 7 years

110% OMV

Between 7 and 8 years

100% OMV

Between 8 and 9 years

90% OMV

Between 9 and 10 years

80% OMV

The PARF benefit can be used to offset the additional registration fee of any new car. Imported used cars and company registered cars are ineligable for PARF benefit.

S$1 was approximately US$0.71 in 1997
Source: Phang and Asher (1997).

Impacts on demand

The vehicle quota system has been held at the 3% growth per annum level since introduction. This has constrained growth in the vehicle fleet significantly. The total vehicle fleet was 228,500 in 1967 and had only grown to 700,000 by 1999, despite being forecast to reach 1 million (LTA, 1996 in May, 2002).

Impacts on Supply

Supply will have been constrained in line with demand.

Contribution to objectives

Contribution to objectives
Objective Comment
  Reduced congestion will have contributed positively to efficiency.
  Reduced congestion will have contributed positively to liveability.
  Reduced congestion will have contributed positively to protection of the environment, primarily through minimising pollution.
  Those on low incomes will have been penalised most by vehicle ownership taxes, especially if alternatives are not available.
  Reduced car useage will have contributed positively to safety.
  Reduced congestion will have contributed positively to economic growth.
  The vehicle ownership taxes are a significant income generator for the government.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Gaps and weaknesses

There are few examples of vehicle ownership taxes being used to control car ownership levels as much as they have in Singapore. If readers are aware of other examples, we would be grateful for any contributions they are able to make.

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).