SINGAPORE ROAD TAX STRUCTURE

SINGAPORE ROAD TAX STRUCTURE: 9.

Mr Hri Kumar Nair asked the Minister for Finance whether it is the Ministry's policy that the road tax structure should promote and encourage the purchase and use of more fuel efficient and environmentally friendly vehicles and, if so, whether the road tax to be imposed on Euro-V compliant diesel

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engines should be based on comparisons of fuel efficiency and particulate discharge with petrol engines, and not with Euro-IV compliant diesel engines.

The Minister for Finance (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, the basic objective of our road and vehicle taxes is to control congestion on our roads. Through upfront ownership taxes, road tax and fuel tax, the Government seeks to manage road use. This is complemented by the ERP, which manages peak congestion. Naturally, however, measures to reduce or manage road congestion are also environmentally-friendly. Further, the structure of our taxes does in fact encourage people to use vehicles that are fuel-efficient and produce less emissions.

First, we provide a Green Vehicle Rebate (GVR), which is calibrated so that a typical hybrid car does not attract higher upfront ownership taxes than the equivalent conventional car – despite the higher Open Market Value (OMV) of a hybrid car.

Second, road taxes, which are based on engine capacity, are higher for bigger cars, which tend to consume more fuel and produce more emissions than small cars.

Third, we have also taken environmental considerations into account when setting fuel taxes. In Budget 2008, the special tax rate for Euro-IV diesel cars was reduced significantly, in recognition of their improved emission standards compared to pre-Euro-IV diesel cars.

In determining the special tax to be imposed on Euro-V compliant diesel engines, the Government will consider the fuel-efficiency and emission standards of Euro-V cars relative to both Euro-IV and petrol cars.

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Mr Hri Kumar Nair (Bishan-Toa Payoh): I thank the Minister for his response. Industry reports suggest that not only Euro-V are as clean as petrol engines, they are more efficient and consume far less fuel. Could I ask the Minister the following supplementary questions? Would the Minister not agree that our tax structure should encourage or at least not penalise the use of more fuel-efficient vehicles? Put it another way, if the regime makes it cheaper to buy and maintain a less fuel-efficient car, does that not mean the regime is flawed?

Mr Tharman Shanmugaratnam: First, I quite agree with Mr Hri Kumar that we should not and, in fact, we do not penalise more fuel-efficient cars. The whole structure of our tax system for vehicles today, in fact, does not penalise more fuel-efficient cars – it rewards them. Road tax is a classic example of that. But even by way of our tax on fuel, the petrol tax taken together with the special tax for diesel, it is clear that we are rewarding more fuel-efficient vehicles.

We reduce the special tax significantly from something like four times of the road tax to 2.7 times of the road tax in Budget 2008, in recognition of the fact that it is more environmentally-friendly than the pre-Euro-IV cars. We will take a look at the Euro-V very carefully, study its emission standards. If it is true that it got much lower carbon emissions compared to petrol cars, but it does have slightly higher particulate matter emissions. These are things we will study and find the appropriate special tax to impose. But on his basic questions, we do not penalise more fuel-efficient cars. We do not penalise more environmentally-friendly cars. At the margin, we have, in fact, favoured them. And the calculation of what we achieved through the green vehicle rebate together with the road tax structure, does point to that.