Singapore Car Taxes - Make cars for Rich People

Singapore Cars Taxes - Make cars for Rich People; Francis Goh sits in a bronze BMW 335i convertible in a Singapore showroom, waggling the wheel and feeling the leather. He isn’t fazed by the S$340,000 ($260,000) price tag, five times what the same car costs in the U.S.

“I see the price of a BMW, to me it’s reasonable,” said Goh, adding that he may instead go for a Mercedes-Benz E200 or Audi A5 to replace his Subaru Impreza WRX.

Record economic growth in the city state is enabling buyers like Goh, a 34-year-old financial industry worker, to splash out on Bayerische Motoren Werke AG and Daimler AG autos even as a 24-fold jump in the cost of a car permit inflates costs. As the government cuts the number of new autos on sale, prices which are already among the highest globally look set to rise further.

Singapore has increased spending on public transport and reduced the number of new car licenses to rein in auto sales and curb pollution and congestion as the booming economy boosts the buying power of the country’s residents. Last year, Prime Minister Lee Hsien Loong promised to spend S$60 billion over 10 years to double the size of the subway network.

“High customer disposable incomes” are spurring demand for cars in Singapore, said Vivek Vaidya, automotive and transportation director at researcher Frost & Sullivan. The reduction in permits “is bound to put the prices in upward spiral.”

Taxing Licenses

Car buyers in Singapore must pay for excise and registration duties of about 150 percent of the vehicle’s market value, as well as bid for a limited number of government permits, called certificates of entitlement, that allow a car on the road for 10 years. The cost of a permit alone would now buy a new Porsche Boxster in the U.S., or a C-Class Mercedes in Hong Kong, where curbside pollution rose to a record last year.

Singapore posted 14.5 percent economic growth last year, based on the government’s revised figures today, swelling the ranks of the city’s millionaires by 35 percent. The country has the highest proportion of millionaire households at 11.4 percent, according to the Boston Consulting Group. On top of that, the population has grown 23 percent in the past decade, adding to congestion in a country about the size of Chicago.

The government today kept its forecast for the economy to grow 4 percent to 6 percent in 2011, even as there’s “some upside potential” to the target.

Fewer Permits

The Ministry of Transport has cut the number of new-car permits it auctions twice a month, driving the price of the so-called open-category COE, which can be used for any size of car, to an average S$71,339 in January. That permit cost S$19,889 at the beginning of 2010 and as little as S$3,000 two years ago. Once the certificate expires, owners either have to bid for a new 10-year permit, export the car, or scrap it.

Government figures show Singapore’s air pollutant levels in the last five years have been as much as 88 percent below the limits recommended by the U.S. Environmental Protection Agency. Hong Kong’s levels in the same period exceeded the limits by as much as 12 percent.

The government has said it aims to make public transport the “choice mode” for Singaporeans. The Ministry of Transport spent S$17.8 billion in the past five years to build two more subway lines, 37 more train stations and a five-kilometer expressway by 2013.

New-car quotas are based on a “sustainable” growth rate, according to the ministry’s website. Only about 15 percent of people own a car in Singapore, compared with 82 percent in the U.S., World Bank figures show.

Cash Upfront

A higher COE price tends to hurt sales of cheaper cars more than luxury models because it accounts for a bigger percentage of the total cost.

“If we stick to Japanese cars and the budget-constrained segment, we are not going to make money,” said Dennis Lim, owner of dealership Auto Equator, which sells brands such as Jaguar and Mercedes-Benz, as well as Isuzu. For high-end autos, “the extra S$20,000 to S$30,000 on the COE is nothing when the total car price is S$300,000 or more. They’re not so price-sensitive.”

Luxury car brands including Aston Martin, Porsche and Fiat SpA’s Ferrari saw sales surge as much as 115 percent last year, the Straits Times reported on Jan. 28. Overall auto sales dipped to 42,000 units, less than half the annual average in the past five years, the newspaper said.

“Our biggest hurdle is for customers to get over the upfront cash they will have to fork out to purchase the car,” said Ron Lim, general manager at Tan Chong Motor Sales Pte Ltd., Singapore’s official distributor of Nissan cars.

‘Choice is Made’

With up to 95 percent of his customers being middle-class Singaporean families, Tan Chong’s Lim said his challenge this year will be to sell the same number of cars as last year.

“Car dealers in Singapore have to make a choice: either they attract higher-end or lower-end customers,” Vaidya said. “Considering that they can only have a finite number of cars on the road, the choice is made.”

Part of the reason for a jump in permit prices is reduced supply. After the ministry announced a total quota of 23,063 for August 2010 to January 2011, the open COE surged to a record $76,102 in December. In the latest tender over the lunar new year holiday, the price fell to S$58,890. For February to July this year, the ministry reduced the quota to 22,368 certificates.

While new car distributors may struggle to replicate last year’s sales numbers, used car dealers such as Gary Hong, general manager at Autobahn Motors, are enjoying new business.

Rising Demand

“The demand for used cars has gone up,” said Hong, whose stocks included a pre-owned 2008 BMW 335i convertible, which he sold two days ago for more than S$300,000. “The COE for new cars has been going for more money. Those people who choose not to pay the premium, they go for used cars as an option.”

With a new Toyota Motor Corp. Yaris costing about $68,000 in Singapore, compared with $15,300 in New York and $18,100 in London, some are reluctant to buy at all.

“I’m having second thoughts about buying a car,” said Stephan Ritzmann, 48, a Swiss executive at a local luxury watch retailer who moved to Singapore from Tokyo in December. “In Switzerland, cars cost less than half of what they cost here. The government wants us to use public transport and it works pretty well.”

For Singaporeans like Goh, who are used to the high tax system and can afford the cost, car ownership remains important.

“I don’t care how much the COE costs,” said Goh, whose five previous cars were all Japanese. “Owning a car to me is not just about prestige -- like, wow, I’m able to own a car in Singapore! For me, a car is for convenience.”