PETROL TAX (Reduction)

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PETROL TAX:

(Reduction): 15.

Mr Steve Chia Kiah Hong asked the Prime Minister and Minister for Finance, in view of the escalating cost of petrol, (a) is the Government collecting more revenue from the flat tax on the higher selling price of petrol; and (b) will the Government consider a small reduction in the petrol tax, so as to alleviate the rising cost of transport due to rising fuel prices.

Mr Lim Hng Kiang (for the Prime Minister and Minister for Finance): Sir, the Government does not collect more

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revenue when the sale price of petrol goes up. Since February 2003, petrol duty has been levied as a fixed rate per litre. In other words, petrol duty revenue depends on the volume rather than the price of petrol.

The petrol duty is a tool to discourage the excessive use of cars and to promote greater use of public transport. This objective remains valid despite the change in petrol prices. There is thus no need to review the petrol tax. We must not fall into the trap of adjusting tax rates every time there is a price change. We import all the oil that we consume. Rather than insulate ourselves from global price

changes, we must learn to adjust our consumption in accordance with these price changes. This is the same with all goods and services - to let prices act as a signal of market demand and supply and to adjust our behaviour in response to these price changes. The fact that there is a tax on petrol should not make our response to price changes in petrol any different to that for other goods and services.

Mr Steve Chia Kiah Hong (Non-Constituency Member): Sir, what is the Government planning to do to help alleviate this rising cost of petrol, especially for transport companies, taxi operators and the commuters who are really affected by it?

The other question is: since crude prices have actually dropped a bit after the Katrina storm, why is it that the petrol pump prices have not dropped?

Mr Lim Hng Kiang: As I mentioned in my reply, prices serve as a very useful signal. And for us in Singapore, where we import all the oil that we consume, I think all of us, as consumers, will have to adjust our behaviour in recognition of these price changes.

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As for the changes in the pump prices at the petrol kiosks, this is set by the petrol companies and it goes up and down based on demand and supply, and based on the prices that they import the refined products, not just the crude products.

Prof. Ivan Png Paak Liang (Nominated Member): Sir, the Minister has explained to the House how petrol duty is being used as a way to curb usage of cars. We all know that we have limited land space and car usage is intensive of our land space. My question to the Minister is: in light of technological developments, such as the development of hybrid vehicles, which are going to be much less intensive in fuel, will this not undermine the policy intent of our petrol duty? And if so, what would be the Minister's response to this?

Mr Lim Hng Kiang: As a general policy, we encourage the use of alternative fuel and energy. This is to give us a greater diversity and also reduce our dependence on oil and petrol. As for the use of hybrid vehicles, we have to leave it to technological developments. As and when technology allows hybrid vehicles to be competitive, we will see a greater use of hybrid vehicles. For the time being, the Ministry of the Environment and Water Resources has in place some schemes to encourage and weigh in favour of such conservation of energy, including the use of hybrid vehicles.

Mr Steve Chia Kiah Hong: Sir, as the Minister correctly pointed out, prices go up but, apparently, it does not seem to be coming down. Is there some kind of a cartel operation amongst the oil companies that are working in Singapore in this direction?

Mr Lim Hng Kiang: The Government does not control oil and petrol prices in Singapore. If you look at the actual increases in crude oil prices and the increases in refined products, I do not think the prices today fully reflect this

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increase. So I think the petrol companies have gone some way to try and ameliorate the increases that they face, especially in refined products.

Dr Geh Min (Nominated Member): Sir, I would like to seek a clarification following the Minister's reply to Prof. Ivan Png on hybrid cars. The Minister said that it is technology that is keeping up the prices of hybrid cars, as opposed to standard cars. But I think it is quite clear, for example, in the case of Prius, it is not technology that is inflating the prices. The Prius is very popular in other countries. China, I now hear, is building the largest factory for the manufacturing of Prius. It is our limited market, I understand, that is restricting dealers from bringing in these cars. I know that the Ministry of the Environment and Water Resources has been trying to promote the use of hybrid cars but, frankly, it needs the help of the Ministry of Trade and Industry and the Ministry of Finance as well.

Can I ask the Minister how he will support the Ministry of the Environment and Water Resources in pushing the use of hybrid cars, particularly, in this climate of escalating petrol prices which I do not think anyone can optimistically expect would go down in the near future?

Mr Lim Hng Kiang: If indeed all these cars are so competitive and are much cheaper, then I think consumers will react correspondingly and the demand will go up, and the dealers will import these cars.