ELECTRONIC ROAD PRICING (Deferment of implementation)

Mr Leong Horn Kee asked the Minister for Communications whether he will defer the implementation of the Electronic Road Pricing (ERP) system after 1st April 1998, in view of the current difficult economic conditions which will impact local businesses.

The Minister for Communications (Mr Mah Bow Tan): Mr Speaker, Sir, road pricing is a major pillar in our long-term strategy to keep our roads free-flowing. Our roads are our economic arteries. If they get clogged, transport costs will go up, businesses will lose time and money, and the productivity of our workers will suffer.

Road pricing has been implemented in Singapore since 1975 with the Area Licensing Scheme, and recently with the Road Pricing Scheme on our expressways. It has been successful in managing the traffic on our roads. But more needs to be done because on one hand our vehicle population is growing, yet on the other hand our land area remains constant.

The Electronic Road Pricing (ERP) will replace both the ALS and the RPS schemes. It is more flexible, more efficient and in the long run, more cost effective. It marks a shift in emphasis, from charging for vehicle ownership to charging for usage. It will encourage more judicious usage and keep our roads congestion free.

There is no reason to delay the start of ERP on 1st April because of the current economic situation. In fact, the current slow-down should spur us to implement policies to strengthen our advantages, like our transport system, in order to maintain our economic competitiveness. The ERP and the new vehicle tax structure revealed on 4th March serve this objective.

The new tax structure and the package of ERP rebates benefit most motorists in general and businesses in particular. For example, Additional Registration Fee (ARF) for tourist buses will be reduced from 55% of Open Market Value (OMV) to 5% of OMV, Registration Fee (RF) for goods vehicles will be reduced by as much as $13,000, and ARF for engineering plant vehicles will be waived. The annual road tax of most commercial vehicles will also be reduced substantially, by as much as $2,000. Where taxes have been increased, we will phase in the increase over three years. To help businesses adjust to the ERP system, we will phase-in the ERP charges for all commercial vehicles over the next three to four years. In effect, many vehicle owners will pay lower road pricing charges than what they pay today.

Commercial vehicle owners and fleet operators will benefit even more if they exercise their ingenuity and discretion. They can reduce their ERP bill by planning their routes and scheduling their delivery times carefully, and pooling transport resources where possible.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, may I ask the Minister whether his Ministry has done any studies or comparison for companies that are involved in the transport trade, ie, companies that are going to use a lot of vehicles for transportation? What would be the impact of the ERP on the total expenses before and after the implementation of the ERP programme?

Mr Mah Bow Tan: Mr Speaker, Sir, for companies that are involved in transport and logistics like freight forwarding, there will be a substantial reduction in their upfront cost as well as in their road tax. But on the other hand, the ERP will add cost to the usage of the roads. How much additional costs they will incur as a result of ERP is difficult for us to say because it depends very much on their usage. But ultimately, ERP is a tool for us to help businesses to readjust the way of doing business and to encourage them to use the roads more judiciously, as I said. In the long run, if they succeed in doing so, it will even be more beneficial to them. Indeed, companies like the bus companies and the taxi companies have already started to make use of technology, to make use of new ways of operating their business in order to adjust to the ERP. In so doing, they will reap not only the full benefits of the upfront tax reductions but they will also help to reduce their ERP bill.

Mr Leong Horn Kee: May I also ask the Minister that since the ERP programme is going to be revenue neutral over the longer term, in effect, would it not actually be loading more onto companies that have to be involved in the transport trade compared to what they are now, because they are even now loaded against in terms of usage? But after the implementation of the ERP, the loading could even be heavier.

Mr Mah Bow Tan: Mr Speaker, as I said, if everything remains the same, if transport companies continue to run their business in the same way without making any adjustment, then the answer is yes, there would be additional cost to them. But this is precisely the reason why we are implementing a new system which is charging for usage rather than charging for ownership. Because there is now a rebalancing of the structure and there is now a shift of charges from ownership to usage, there will be, at the very beginning, upfront savings for these companies that the Member talks about. It is now a question of how those companies adjust their business in order to try and keep as much as possible of those savings that have been given to them.

Mr Jeyaretnam: Will the Minister agree that motorcycles are used by the working class and people with low incomes to get to work? In view of the possible pay cuts, even in basic pay, and their loss of income, why should the Ministry not consider deferring the implementation for motorcycles at least, until the situation improves?

Mr Mah Bow Tan: Sir, the Member obviously has not read the newspapers or the LTA webpages, in the same way that he has not read the NTUC News. I would recommend that he does so before he asks this question, because if he had, then he would realise that in fact 90% of the motorcyclists, with the phasing in of road taxes and with the ERP rebates that will be given to them in the first few years, will actually either be paying lower road taxes or no road tax.

Dr S. Vasoo (Tanjong Pagar): Sir, can I ask the Minister whether the Ministry has done any survey on the impact on the cost of goods and services to consumers with the implementation of ERP?

Mr Mah Bow Tan: Sir, we have not done any detailed surveys on the impact of ERP on goods and services. But the Ministry of Trade and Industry has given us an indication that, all things being equal, there will be a marginal impact on the cost of doing business. Indeed as a result of the massive tax rebates that have been given to businesses, particularly businesses involved in transportation, freight forwarding and so on, hopefully there will be some passing back of those savings to the consumers.

Mr Inderjit Singh (Ang Mo Kio): Sir, since the Minister intends to implement the system anyway, can I can ask why do we not bring the implementation date forward to the 1st April? The scheme has already started to create a lot of confusion to the motor traders. Since we plan to implement it, why do we not implement it on 1st April?

Mr Mah Bow Tan: May I ask the Member what confusion he is talking about?

Mr Inderjit Singh: Especially in the area of commercial vehicles, with the registration fee coming down by a drastic amount, a lot of companies that have placed orders for vehicles are waiting or cancelling their orders. This has actually created problems for motor traders, and there is a wait-and-see attitude. In my opinion, since we have decided to implement the scheme, we could bring forward the implementation date.

Mr Mah Bow Tan: Sir, the package of tax reductions and the introduction of ERP was done as a total package. In other words, the implementation of ERP is actually going to be effective in a very small way on 1st April, a very small way, but in a more widespread way from 1st September. Therefore, the LTA formulated this package of measures to also be effective from 1st September.

As regards motorists holding back their purchases, as far as those who already have COEs in hand are concerned, what I would term old COEs, there is really no reason for them to hold back their purchases because those with old COEs will not be allowed to register their vehicles under the new tax regime. That would be unfair to those who have already registered using the old COEs. Old COEs already available have to be used to register vehicles using the old tax regime. So there is still business to be done.

As regards people holding back purchases of new vehicles, the Motor Traders Association and other parties have made representations to the LTA. The LTA is now studying these representations and it will consider these views and an announcement will be made one way or another very soon.

Mr Low Thia Khiang (Hougang): Sir, is the Minister aware that motorcyclists will eventually pay higher charges for road usage? The fact is that they will have to pay much higher road tax after the phasing in of road tax after five years. In view of the motorcyclists' income, is the Minister of the view that the system is equitable to them?

Mr Mah Bow Tan: The Ministry has looked at the position of motorcyclists very carefully because we realise very well that people who own motorcycles are people who generally belong to the lower income group and who need to use their motorcycles for business. The fact is that more than 80% of motorcyclists today do not pass through any ALS or RPS point. This finding is based on surveys as well as on the sale of ALS and RPS coupons. In other words, 86% of motorcyclists do not pass through any of these points. What that means is that any rebates and any tax savings that will arise as a result of this package will be beneficial to them. It will go straight to their pockets because they do not have to pay anything upfront.

Secondly, another 10% of motorcyclists pass through the ALS or RPS points once. So, if we implement ERP and if the rates are more or less the same as what they are today, again, there is really no difference from what the situation is today. And any rebates that they get will also go straight to their pockets. So it is the very small group of people, about 5% or so, who use the RPS and ALS very often, yes, they will have to incur higher cost. But as I said, this is the purpose of the road pricing scheme. This is the purpose of electronic road pricing which encourages people to save and penalises people who use our roads during congested hours more heavily. It is precisely for that reason that we are implementing ERP. It is not to make the scheme revenue neutral for each and every motorist or motorcyclist. Therefore, it is incumbent on companies and motorcyclists to now relook at the way they are doing business. That is the whole idea of the scheme. It is not meant to be a painless scheme for everybody. If that were the case, we might as well not have implemented it, because this scheme is meant for people to change their driving habits. But in the formulation of the scheme, we have taken pains to make sure that the pain for motorcyclists is minimised, and we have done so in several ways.

We have looked at the PCU ratings. We have looked at how motorcyclists should be taxed in relation to cars. We have taken the smallest number to compute their road tax. We have looked at small motorcycles as opposed to big motorcycles. We have looked at the motorcyclist who owns a 200 cc motorcycle and below and taxed him differently from somebody, say, who owns a Harley Davidson, and we phase in the increases, if any, over three years. All this, taken together with the road tax rebate and phase-in, means that effectively 99% of motorcyclists actually do not pay any more taxes. In fact, if you look at the calculations which we have done, motorcyclists owning vehicles below 350 cc actually will pay zero road tax over the new few years. Five years later, they would have adjusted. But, as I said, this scheme is not meant to be a standstill for motorcycle taxes. That I must admit.

Mr Jeyaretnam: Sir, if I may revert to the Minister's reply to my question on delaying the implementation of the ERP for motorcycles, would he agree that his answer is really no answer? Because in the case of road tax, they might probably have already paid or it may not be due for some time. But in the case of ERP, it is a present-day charge, that they keep paying every day when they have to go through the gantry.

Mr Mah Bow Tan: Sir, as I have already indicated, the majority of motorcyclists, in fact, over 80% do not pay. 10% pay once, which they are already paying today. So the Member is talking about the 5% of motorcyclists who use it regularly. As I explained to his colleague, Mr Low Thia Khiang, it is up to the motorcyclist himself to start to readjust his way of operation. If you are a motorcyclist who use the congested roads in the CBD five times, 10 times or 20 times, why should the rest of the motorcyclists who do not use the roads have to pay? Why do they not get the benefits?

Mr Jeyaretnam: They may need to go through it.

Mr Mah Bow Tan: If he needs to, then he pays for it.

Dr Vasoo: Sir, as a follow up to my earlier question, if the school bus operators were to increase their charges unnecessarily, what action would the Ministry take?

Mr Mah Bow Tan: Sir, the school bus operators will also not incur higher taxes. They will also incur lower taxes; again, as part of the total package. So there is really no reason for them to increase any of the bus fees, for at least this year and the next few years.

Mr Low Thia Khiang: Sir, would the Minister agree that eventually the motorcyclists will be paying more than what they are paying now? With the phasing in of higher road tax for the motorcyclists, what is the rationale for phasing in a much higher road tax scheme than at present?

Mr Mah Bow Tan: Sir, basically, when we did this exercise, we started off with a blank sheet of paper. I said in Parliament, and I said to the Motor Traders Association and various interest groups, that this is an opportunity for us to start off from basics, to see how different types of vehicles, different sizes, different cc, different seating capacity, how much each vehicle should pay for using our roads and for causing wear and tear of our roads. We started off with a blank piece of paper. We did not look at the existing tax structure. How much should a big car pay as opposed to a small car? How much should a bus pay relative to a motorcycle and so on and so forth? There is a whole range of vehicles registered on our roads today, 680,000 of them, ranging from very small 100 cc bikes, all the way to very heavy goods vehicles, the semi-trailers and so on.

We are starting off, as I said, with a blank sheet of paper. We are looking at the right tax that each vehicle should pay based on (1) traffic considerations; and (2) based on what I would call social equity considerations, meaning if you drive a bigger car, you should actually be paying a higher tax than a smaller car. If you ride a bigger motorcycle, you should be paying more than a smaller motorcycle. We put all these things together and we came up with a basis for charging different vehicles. In the process, we realised that for some vehicles, they should be paying lower tax, eg, goods vehicles. For other vehicles, they should be paying higher tax. For example, motor-cycles. Motorcycles' tax has not been changed for decades. Some of them pay $20 a year in tax, which also has not been changed for decades. But that is where we are today.

How do we go from where we are today to what each vehicle should rightly pay based on traffic and social considerations? For all those who are going to pay less, there is no problem. It is a question of charging the new rate for them and they will enjoy the savings. Good luck to them. But those who are paying more, we have taken the decision that we will phase in these increases where there is an increase, and the motorcyclists belong to this category that they will have to pay higher road tax. That is a fact based on their contribution to road usage and other considerations like social equity and so on. So a 1600 cc bike or a 1200 cc bike will pay $620 a year instead of $300 a year for those big luxury bikes. A 400 cc bike will pay $180 a year instead of $80 a year, an increase of $100 a year. The smallest bike, say, the Honda 125 cc , instead of paying $30 a year, will have to pay $100 eventually. So motorcyclists should be paying $100, $180 and $620 relative to other vehicles on the road. That is how we derive the new tax structure.

To minimise the pain and to phase in the increases, we have done it over three years. On top of that, we are giving the ERP rebates. You put all these things together, as I said, the net result is that motorcyclists and many other vehicle owners will over the next couple of years actually be paying less road tax than what they are paying today. Of course, yes, this will be phased in. Motorcyclists will have to adjust to these increases over three years in paying the new taxes. But that is because, as I said, under the new tax regime, this is what they should rightly be paying. We have not adjusted the tax rates for many, many years. This is the overall review that we are undertaking and this is the net result of that review. But we have recognised that motorcyclists belong to several different categories. The bulk of the motorcyclists in Singapore are 200 cc and below. For them, we are actually charging them a tax which is less than what they should actually be paying. So we have also shifted that downwards. For 1000 cc bikes and above, we have made no adjustments. No special consideration for them. They are paying the correct taxes for motorcycles relative to cars.

So with these adjustments, with the phasing in, and with an appropriate choice of the PCU unit, we believe that we have adopted a fair, consistent and rational basis for taxes for motorcycles as well as for all other vehicles. This is the total package that we are implementing together with the ERP.

Mr Zainul Abidin Rasheed (Cheng San): Mr Speaker, Sir, may I seek a clarification from the Minister for Communications regarding revenue neutrality for this exercise. I read from the Minister for Finance's Statement that overall the Government expects to achieve revenue neutrality for this exercise in about eight years. Is this the target set and whether in fact the new charges levied will be reviewed and increased or decreased depending on the target set in terms of eight years? Also on the question of revenue neutrality, whether in fact that should be a target by itself or whether it cannot be based on a formula of net gain for road users if traffic usage on the road is under better control.

Mr Mah Bow Tan: When we formulated the new tax structure, we had to have some idea of what revenue impact this would have because we are talking about changes in not only annual road taxes but also upfront taxes. In establishing the new regime, we took into account the basic principles, which is what I explained in Parliament earlier where we are shifting taxes from ownership to usage, where we are taxing cars, buses and motorcycles relative to road usage, where we are talking about giving concessions to public transport vehicles and so on and so forth. But the most important principle for us was the last principle of revenue neutrality. Because without that principle we are not able to arrive at numbers. We can only talk about principles, but we have to arrive at new numbers, new taxes, for different classes of vehicles. It is not a target. It is an indication of what our intention is for this exercise, ie, it is not an exercise to raise revenue, but it is an exercise in changing the way we use and charge for the use of our roads with the intention that this new regime will keep our roads free-flowing.

On that basis, we have made the shift. We have reduced upfront taxes. We have put it into ERP and usage charges. But how much to charge? We have to get the calculations done. That calculation was done on that basis of revenue neutrality over a period of five to eight years. Why five to eight years? It is because the current estimate is that with this new package, we will be revenue negative for the next five years, which the Finance Minister has said, to the tune of slightly over $1 billion. So $200 million negative every year, even taking into account the increased ERP revenues.

How is it going to be neutral? It is going to be neutral if we can, and I certainly hope we can, issue more COEs. Because one of the benefits of this scheme is that we are able to, if we can spread the load and get motorists to use the roads less, actually increase the allowable COEs over and above the 3%. If that happens, then the additional revenues and the additional taxes as a result of that will help to offset this package. But it is not a target. The ERP charges will be levied based on traffic conditions. It will not be based on revenue consideration.

Dr Toh See Kiat (Aljunied): Sir, the LTA has declared that one of the objectives of the ERP is really to free up the school bus market and that there will be more competition so that there will be no possibility of cartels fixing prices at unreasonably high levels. It appears that ---

Mr Speaker: Order. Dr Toh, are you making a speech or asking a question?

Dr Toh See Kiat: I am coming to the question, Sir. It appears that the private bus owners have now indicated that they are not interested in coming into the school bus market. Will the Minister care to enlighten us on this?

Mr Mah Bow Tan: I am not aware of what the Member has said just now that they are not interested in coming into the market.