The high cost of motoring in Singapore

Business Horizons, March-April, 1994 by Rex S. Toh

The Open Market Value (OMV) or destination price (with cost, insurance, and freight) of a new Mazda 323 with automatic transmission is about $10,000. Singapore imposes an ad valorem customs duty of 45 percent on all imported cars. The one-time registration fee is $600 for a private car and $3,000 for a company car. On top of this, there is a very high Additional Registration Fee (ARF) equal to 150 percent of the OMV. The dealer markups in Singapore are astronomically high - up to 305 percent for a Maserati Biturbo 220. The dealer markup for the Mazda 323 is 78 percent - considered about average for all car makes and models, but more than ten times the average markup for cars sold in the United States.

Currently, to purchase a car in Singapore, one must bid for a Certificate of Entitlement (COE) at monthly auctions, because of a quota system on cars introduced in May 1990. As of December 1993, the price of the COE (called the quota premium) for the Mazda 323 was about $25,100. So the price paid by a private Singaporean for the Mazda 323 would be:

OMV                $10,000
Customs duty         4,500
Registration fee       600
ARF                 15,000
Dealer markup        7,800
Quota premium       25,100
TOTAL              $63,000

This is about six times what a subcompact car would cost in the United States. To put things into perspective, the cheapest used, government-built, two-bedroom high-rise apartment in Singapore would cost only $30,000. In probably no other country in the developed world would a car cost more than twice the price of a house.

A peculiar system of tax rebates called the Preferential Additional Registration Fee (PARF) has been in operation since December 1975. Concerned that high prices for new cars would encourage motorists to keep their cars for a longer time, thereby increasing the average age of motor vehicles on the road and leading to more frequent traffic-slowing breakdowns, the government offers car owners a discount that reduces the ARF on a new car purchase if an old car is scrapped or re-exported before the end of its tenth year. As is the case for most traffic-related matters in Singapore, the PARF system has undergone many complicated changes since its inception in 1975.

As it stands now, for cars registered after November 1, 1990, the lump sum value embodied in a PARF benefit is equal to 80 percent of the OMV of the car at the time of registration. What this means is that if you bought a Mazda 323 on January 1, 1993 at an OMV of $10,000 and you surrender it to the government-owned National Iron and Steel Corporation before January 1, 2003, you will be issued a nontransferable scrap certificate worth $8,000 to be applied towards the ARF of a new car regardless of engine size.

Paying the price of owning a private car in Singapore does not end with the purchase. The annual road tax (annual fee for the renewal of license plates) ranges from $0.42 to $1.05 per cubic centimeter of engine capacity, depending on the size of the engine. The road tax on a 1600 cc Mazda 323 would equal 1,600 x $0.54, or $864 a year - almost ten times what a typical subcompact car would be assessed in the United States. Cars that are ten years old or older are required to pay a heavy surcharge on the road tax equal to 10 percent a year beyond ten years, up to a maximum of 50 percent - again, as an inducement to get older cars off the road.