Understanding The Expensive Nature Of Purchasing A Vehicle In Singapore

Image source- The Straits Times

Buying a car in Singapore is quite an expensive affair, and this is something that the locals know all too well. It explains why there are so many scooters and motorcycles in the country since they are cheaper than their 4-wheeled counterparts.

If you live elsewhere in the world and are not familiar with just how expensive it can be to purchase a car, just watch this video of celebrities reacting to the expensive nature of purchasing a car in Singapore. Even Vin Diesel was surprised. The video will give you a fresh perspective of the situation. But just why are cars so expensive in Singapore?

The government aims to use it as a means of reducing traffic jams and emissions

Singapore is a small island, but its population was around 5.612 million, according to a 2017 census report. This means that the city-state can be quite congested. This small nature of the island and its sizable population makes it quite susceptible to traffic jams since there is little room to expand the roads.

To put things to perspective, the base model of the Toyota Prius costs around $24,325 in the U.S and roughly $32,500 for a fully loaded unit. However, it costs a whopping $154,000 for the same car in Singapore. This means that even the middle-class in Singapore may still not easily afford a car. Vehicles are thus a luxury that not many people in Singapore can afford.

Singapore’s government has implemented various measures aimed at enforcing the two agendas of reducing traffic jams and emissions. Some of these measures contribute to the hefty price tags that come with owning a vehicle in the country.

• Singapore’s hefty registration fees

Cars in Singapore are subjected to several taxes and fees, such as the Additional Registration Fee (ARF), which is a tax that has to be paid for every car as it is being registered. The ARF is calculated based on the Open Market Value of the vehicle (OMV). The latter refers to the value at which the car would be sold, for example, in Europe or in the U.S or any other market for that matter, prior to the addition of taxes. The following table demonstrates how the ARF is calculated.

The ARF is largely responsible for the bulk of the additional cash that car buyers in Singapore have to pay over the OMV. However, there are more taxes and fines that still bump up the final price that the buyer has to pay.

• Certificate of Entitlement

There is a law in Singapore where every person that owns a car is only allowed to drive the vehicle for a specific duration, usually ten years. A document called the Certificate of Entitlement issued to everyone when they apply and qualify for this permit, and it can be renewed after the expiry of the 10-year period. However, one needs to part with a substantial amount of cash, usually $30,000 to $40,000 for the COE.

• Excise duty

This is a type of tax that is charged on some type of goods that are imported into the country. Vehicles are among the goods that are subjected to excise duty when imported into the country. Singapore’s government imposes a 20 percent excise duty on the OMV of imported vehicles. Vehicles are also charged an additional 7 percent Goods and Services Tax, which is charged on the total value of the OMV plus the excise duty.

• The dealer’s margin

Note that all the above charges and taxes are simply based on the OMV. Singapore residents have to purchase the vehicle from somewhere, and that is usually from a dealership even if it is purchased abroad and imported. The dealer obviously needs to make a profit from the business of selling the vehicles, and so the buyer has to pay the deal his/her cut.

The dealer’s margin may vary from dealer to dealer. Some may charge as little as 15 percent of the basic costs, and this is usually the affordable brands. However, luxury brands tend to take a higher cut that may be as high as 50 percent. Note that the basic cost is the total cost once you factor in the OMV, COE, excise duty, ARF, and GST.

In addition to the above, there are the normal expenses that come with owning a vehicle. It has to be fueled, you have to pay parking tickets, and the cost of regular maintenance of the vehicle.  The overall cost of owning a car in Singapore is just too much for most people in the country.

The impact of the high prices on the number of vehicles on the roads

Image source- AsiaOne

Statistics indicate that the vehicle population in 2019 was slightly under 1 million. The Land Transport Authority revealed in 2018 that the number of privately owned vehicles in Singapore was 551,575, which was a slight improvement from the 546,706 reported in 2017. This highlights the impact of government policies aimed at reducing the number of vehicles on the roads.

Despite the slight increase in the number of privately owned vehicles from 2017 to 2018, there has actually been a decline in the macro outlook. There were 607,292 privately owned cars, which were significantly higher than the figure reported in 2018, thus indicating a decline in car ownership over the past five years.

On the flip side, there has been an increase in the number of registered rental cars in Singapore from 16,396 to 66,480 within the same five-year period. This surge may have, however, taken a slight hit due to the exit of Uber from Singapore’s market in 2017 when the number of rental vehicles was slightly higher at 68,083. The number of vehicles in the taxi industry in Singapore has also been on the decline over the past decade. In 2013 the number of registered taxis was 27,695, while the number of taxis operating on Singapore roads in 2018 was 20,581.

It looks like the hefty price of vehicles has forced most Singapore residents to use public transport as the best and most affordable option. This also aligns with the increase in the number of buses on Singapore roads. So far, there are roughly 19,379 buses on the country’s roads.