CUSTOMS (AMENDMENT) BILL

[Mr Speaker in the Chair]

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Customs (Amendment) Bill seeks to allow the Minister to specify, by order, the minimum amount of motor spirit that a Singapore registered vehicle must have in its fuel tank before leaving Singapore by road. At present, the requirement for the vehicle to have at least half a tank filled with motor spirit is spelt out in the principal Customs Act.

Mr Speaker, Sir, Members would recall that the present half-tank rule was introduced on 17th April 1989 to ensure that cheaper Johor petrol would not undermine our use of petrol tax as one of the measures to curb vehicle usage in Singapore and to reduce the loss of Government revenue on petrol purchased outside Singapore. The rule was chosen among several alternatives considered as a measure which would not discourage Singapore motorists from visiting Johor.

Up until August 1990, the half-tank rule has worked satisfactorily in achieving our objectives. Statistics at the Woodlands Checkpoint had shown that the introduction of the rule had curbed the trend of Singaporeans uplifting cheaper petrol in Johor without reducing the flow of Singapore motorists visiting Johor.

Following the Iraqi invasion of Kuwait, the price of premium petrol has increased from approximately $1.12 per litre to as high as $1.54 per litre in mid-October 1990, and to approximately $1.20 per litre as at present. Consequently, the difference in pump price between Singapore and Johor has now widened to 48 cents per litre. This has led to a surge in Singapore registered cars crossing to Johor to uplift the cheaper petrol there, despite the half-tank rule. The duty loss arising from this amounts to around $2 million per month, about the same level just before the introduction of the half-tank rule.

With the introduction of unleaded petrol, tax on petrol will be adjusted from 4th February 1991 such that unleaded petrol will cost 10 cents per litre less than leaded petrol, despite the fact that it costs more to produce unleaded petrol. With this, we expect the pump price to increase by 15 cents per litre in the case of leaded petrol because of the additional tax imposed to discourage its usage, and 5 cents per litre more in the case of unleaded petrol because of its higher production cost. This will cause the pump price gap between Singapore and Johor to widen further to 63 cents per litre for leaded petrol and 53 cents per litre for unleaded petrol.

The availability of substantially cheaper petrol in Johor from February will undermine the conversion to use of unleaded petrol in Singapore and make petrol taxes less effective in restraining car usage and also cause significant loss of revenue. For these reasons, once the Amendment Bill is passed, we will require Singapore registered vehicles leaving Singapore by road to carry a minimum of three-quarter tank of fuel instead of the present half a tank. This will take effect from 4th February this year.

Mr Speaker, Sir, at this point, I would reiterate that it is not the Government's intention to discourage Singaporeans from visiting Johor. On the contrary, Government is committed to the development of close economic ties with Johor. Soon a ferry link to south-west Johor will be established and a second causeway is being planned. We encourage more Singapore motorists to commute to Malaysia for business or social reasons. What we discourage is Singaporeans going to Johor just to take advantage of the cheaper petrol there.

Some Members may ask why Government does not reduce the tax on petrol as an alternative means to curb Singapore motorists uplifting petrol in Johor. I must emphasize here that this option is not feasible, as tax on petrol is imposed in Singapore not only to raise revenue but to achieve other objectives, namely, to discourage vehicle usage as a means to curb traffic congestion; to encourage the conservation of energy; and to encourage motorists to convert to the use of unleaded petrol. In the event of world-wide oil shortages, the need to conserve fuel will become even more important as Singapore imports all the oil it consumes.

The switch to a three-quarter tank rule is not expected to add to the inconvenience of motorists leaving for Johor as Customs officials will continue to enforce the new regulation with the same discretion as they have under the existing half-tank rule.

Sir, I beg to move.

Question proposed.

Mr S. Chandra Das (Cheng San GRC): Mr Speaker, Sir, I rise in support of the Customs (Amendment) Bill introduced by the Minister for Finance.

Frankly, many Singaporeans are not happy with what they call the tiga-suku rule or san suku in Hokkien. While some Singaporeans believe that Singapore is a "great" nation and we should behave like one, others feel that this rule is one other "irritant" imposed by the Government.

Sir, I can understand their reaction. However, we ought to set aside emotional considerations and look at the problem more objectively. What are the consequences if this new rule is not introduced? The Government has taken great pains to explain them. To summarise: first, it will defeat the policy of encouraging motorists to use unleaded petrol; second, it will make higher petrol taxes less effective in restraining car usage; and third, it will cause significant loss of revenue to the Government.

Sir, the introduction of unleaded petrol is necessary, as the Minister for the Environment has explained in this House, to improve our living environment. It will also help us to portray Singapore as a responsible country in the world community. Also, we need to restrain car usage in order to maintain an effective road network. A healthy living environment and a working road network are two major prerequisites necessary to attract international business to Singapore.

At the same time, Sir, with the plight of Kuwait in the headlines nearly every day, Singaporeans must understand our vul- nerability. The best help is indeed self-help. We have to take care of ourselves before we can be generous to others. To condone the perpetual draining of Government revenue amounting to millions of dollars a month is unlikely to be a long-term solution.

Petrol, like cigarettes. spirit, wine and beer, is one of the few dutiable items in Singapore. If you bring cigarettes and liquor from anywhere, including Johor Baru, you will have to pay duty. Obviously, the same reasoning could be extended to petrol. To put the criticism in perspective, Singaporeans are angry because the Government has been very lenient in the past.

Sir, what are the alternatives to the three-quarter tank rule? In fact, there are not many. One way would be to allow Singapore motorists to leave Singapore without any restriction, and to levy a tax on the petrol they bring back in their tanks. I believe this will be a worse-off situation for all motorists and in fact it will penalise motorists who go to Johor Baru genuinely for other purposes than just filling up their tanks.

Sir, while we have to accept this rule, I would like to make two suggestions to the Finance Minister for his consideration. Firstly, I would like to ask the Government to exercise flexibility in implementing this rule. Not all the cars are equipped with fuel gauge that marks the three-quarter tank level. Moreover, the fuel gauge, as the name suggests, is a gauge; it was never intended to be a measuring instrument. As a result, the three-quarter tank mark may not necessarily correspond to the three-quarter tank on certain cars. Therefore, motorists, I believe, should be given the benefit of doubt when borderline cases are involved. I would strongly urge the Finance Minister to ask the Customs officers to refrain from taking photographs of suspected erring motorists. I think this would really carry it too far.

Secondly, I would ask the Finance Minister to introduce a trial period, maybe one month, after 4th February. During this period, offenders or would-be offenders could be issued warning notices instead of imposing the fines immediately. This would allow the public to get adjusted to this three-quarter tank rule and also give the authority some leeway to iron out any hitches that may come along.

Finally, Sir, I have been told that many motorists, while going through the checkpoint, point to the heads of the Customs officers and say "tiga-suku". While this rule is effectively a "tiga-suku" rule, the Customs officers are stationed there to do a job. The rule is implemented for the collective good of all Singaporeans and not for the Customs officers' personal gain. Therefore, I would like to appeal to our motorists to cooperate with our Customs officers and exercise some restraint.

In conclusion, I would like to state that the introduction of the three-quarter tank rule is based on sound grounds. The policy objectives are sound and I am convinced that this is the least that the Government can do in the present circumstances.

Mr Chew Heng Ching (Eunos GRC): Mr Speaker, Sir, I support the objective and principle behind the Bill. I have a few questions for the Minister.

Sir, when the House debated the half-tank rule in April 1989, the Minister said the scheme must be as simple as possible and should not cause traffic congestion. The Minister also argued that it was difficult in practice to implement the three-quarter tank rule because the three-quarter mark was either missing altogether from the meter or very near the full-tank mark. I think this is true in practice as the fuel gauges of cars are generally non-linear in scale.

In the light of the Minister's argument in April 1989, I would like to ask the Minister why is he going ahead to implement the three-quarter tank rule. Second question: would the Minister be able to enlighten us with some ballpark figures on the tax revenue per month that will be forgone if the three-quarter tank rule is not implemented? Another question: will the Minister consider lowering taxes on petrol should petrol prices rise substantially after the Gulf war has started? Also, will the Minister consider not implementing the three-quarter tank rule as part of the Government's efforts to try to encourage Singaporeans to visit Malaysia this year?

Finally, I support the suggestion by Mr Chandra Das that a grace period of one month be given for Singapore motorists before the three-quarter tank rule is implemented.

Mr Chay Wai Chuen (Brickworks GRC): Thank you, Mr Speaker, Sir, for allowing me to speak.

The Government announced some weeks ago that it will be raising the requirement of Singapore cars going to Malaysia to have a three-quarter tankful of petrol from the present half-tank rule. This announcement was made with some explanation of how the price difference of leaded and unleaded petrol has widened. Some people have argued or explained why this is good for a green Singapore. Some have argued or explained why it will not affect traffic flow between Singapore and Johor Baru. Even the Straits Times has sought to argue the tenuous connection why this is good in view of the philosophy of stringent pricing on road usage in land scarce Singapore. Frankly, Sir, I do not see the connection.

Sir, you will recall that when the half-tank rule was first brought up, there was much uneasiness among the public on the matter. It seems to suggest so many things to so many people regarding what the policy aims to do. One person actually asked me whether the next thing the Government was going to do was to make sure that Singaporeans have a full stomach before they go to Johor. Let me say that I support the Ministry of Finance's policy of plugging this problem, which is a clear-cut custom duty loophole problem, which lies hidden in the petrol tank. I agree with the person who said that the Government should announce clearly its intention to plug this loophole and set the target date for the full tank rule to be effective.

This amendment allows the Minister to vary the tank rule. Every time it is changed, new explanations and interpretations will be proffered. It is like defining the elephant to people who have only touched or felt different parts of it, all coming out with different ideas of the elephant, depending on which part of the elephant they have touched or felt or knocked against. Of course, there will always be arguments for and against. But I feel that this is not good for the Government as the people have all sorts of explanations or misunderstandings of the policy. Some argue it is good for creating road space at the causeway and for swifter traffic. Some argue that if the policy is to help the environment in favour of non-leaded petrol, then the Government should reduce tax on unleaded petrol or award demerit points or give incentives to buy new cars. The Straits Times in its editorial even talks about a dual pricing rationale for the three-quarter tank rule. I hope this varying of the tank rule will not deteriorate into an instrument of regulating control on traffic flow or has a dual pricing rationale for some policy goals of which I am not aware, and I hope the Minister for Finance can clarify this matter.

Sir, these are not my wild imaginations. One should read the editorial of the Straits Times of 10th January 1991 to appreciate the contortions and the letters to the Straits Times. Sir, the confusion regarding this clear-cut custom duty problem is partly caused by the Ministry of Finance, unwittingly or deliberately, taking a lift from the Environment Ministry in attempting to point out the discrepancy in leaded and unleaded price of petrol between Singapore and Johor. I really do not see the connection this has for a three-quarter tank rule. Does it mean that we will revert to a half-tank rule if the price differential is to be narrowed by some factors in the future?

It is very important for the public to understand correctly the aims of any legislation or policy, otherwise it can be misrepresented by others and what mileage one can gain in fudging the issues in the short term can be defeating in the long term. Those who argue favourably but wrongly for one is a far greater danger to one than those who argue unfavourably but rightly against one. Hence, I would seriously urge the Minister to consider announcing a target date for a full-tank measure. This will bring the customs duty loophole for the petrol in the tank in the car to a close, and the quality of informed public comment and debate to greater heights and fuller measure.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I will reply to each of the speakers in turn, although there is some overlap.

Mr Chandra Das has asked if Government would exercise flexibility. I can give him a categorical assurance that that will be the case. In fact, our experience has been that in the last year or so the Customs officers have been very flexible and there have been very few complaints about the way they have implemented the half-tank rule. They will certainly continue to do so.

It is recognised that the three-quarter tank rule would create some problems because about one-third of cars do not have the three-quarter tank mark. This means that the Customs officers will have to assume that if the meter stands half-way between the half-tank position and the full-tank that the three-quarter tank rule is satisfied, and they will use their discretion accordingly. I think in the majority of cases they would give the benefit of the doubt to the motorist.

I believe that Mr Das has misunderstood the press statement about photograph-taking. I am not sure what the origin of that is, but I believe the intent was to take photographs, not of the motorist, but of the meter so that if there should be any dispute over the position of the marker on the fuel gauge, this can constitute proof. So I do not think the Customs officers want to take pictures of people.

His suggestion that we should introduce a trial period of about a month is a sensible one and I am prepared to consider that. We had in fact introduced a trial or grace period when we first introduced the half-tank rule. At that time, motorists who did not have a half-tank on their gauges during this period would be turned back but not fined. We can continue this trial period in the same way for the three-quarter tank rule but, in this case, of course, the discretion not to fine the motorists would only apply to those who have at least half a tank. So if there is any doubt between half and three-quarters during the trial period, we can accept that the motorist will simply be warned, not fined, but turned back to fill up to the proper mark. I thank the Member for his suggestion.

Finally, he has said that some motorists at the causeway have been casting derogatory remarks like "tiga-suku" against Customs officers. I agree with him and I would ask motorists not to vent their frustrations against the Customs officials because it is not their fault. Blame me, if you like, but they are merely doing their job and have done it under great restraint.

I might at this juncture explain why, and this anticipates some of the questions asked later by the other Members, Government chose to introduce the three-quarter tank rule rather than the full-tank rule. It is simply to allow the motorist some discretion in not having to top up his tank every time he wants to go to Johor, lest he runs the risk by the time he reaches the Johor causeway, his meter has somehow fallen below the full-tank mark. So it is done with a conscious wish to avoid inconvenience to the motorist, although administratively and from the financial point of view, I would have preferred the full-tank rule right away. You can see that it would be much simpler to administer, but the decision was taken to give the benefit of the discretion to the motorist. It is not for any other illogical reasons.

Mr Chew has asked why I had in 1989 argued that the three-quarter tank rule was difficult to enforce and therefore we introduced the half-tank rule. That is technically true. The half-tank rule is simpler because every fuel tank meter has a half-tank mark. At that time, the half-tank rule was thought to be adequate in view of the differential in prices at that time. But clearly it is insufficient now since the price difference has widened considerably. Hence, our need to raise the tank rule from half to three-quarters, and I have just explained why we did not move entirely to the full mark.

He has also asked what is the tax loss if the three-quarter tank rule is not introduced. At the moment, the tax loss is currently estimated to be running at something like $2 million a month. Previously, before the prices jumped, the tax loss was running at about $1 million a month. So it is nearly double. The objective is to try and bring it back to below $1 million per month.

He has also asked that if oil prices in the Middle-East should jump as a result of war, would we consider lowering taxes. I think this question can only be answered when we actually see what happens.

He has also suggested that we might consider not introducing a three-quarter tank rule so as not to discourage Singaporeans from visiting Johor. I think the statistics disprove this. Prior to the half-tank rule, cars going to Johor were running between 5,000 and 6,000 per day. They are running at about 9,000 per day now despite the half-tank rule. So we do not believe that this move to the three-quarter tank rule will in fact have any significant impact in discouraging motorists from going to Johor for other reasons.

Mr Chay has suggested that we should move to the full tank rule immediately so as to avoid any confusion in the public's mind about Government's intentions. I have explained earlier why we did not do this, and it is deliberate. In the case of any tank rule there are only four positions you can choose: no rule at all, quarter-tank, half-tank, three-quarter or full. In between, it is not possible to enforce. So I do not think the question of misunderstanding the policy is very likely. I have explained why we did not move to the full tank rule. It is mainly because we do not want to create unnecessary inconvenience for the motorists.

Finally, there has been a suggestion that one way of solving this problem in the introduction of unleaded petrol would be to reduce the tax on unleaded petrol and keeping the tax on leaded petrol the same. Experience in other countries has been that in order to induce the motorists to switch from leaded to unleaded petrol would require a price differential of about 10 cents per litre. Therefore, if we were to reduce taxes on leaded petrol by 10 cents per litre, the tax loss would amount to approximately $70 million per year. It is an enormous sum because currently petrol consumption is running at something like 750 million litres per year. So a 10 cents reduction on duty will cost a revenue loss of $70 million, equivalent to the tax collection from 1% of corporate tax. In other words, in order to offset a price reduction of 10 cents per litre on petrol, we would have to raise corporate taxes by 1%. I am sure that is not a sensible alternative.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.