EARLIER this month, The Straits Times reported that the Government had handed out $410 million in cash refunds to motorists who scrapped their vehicles.
If you’re a foreigner reading this, you might wonder what the significance is. Is Singapore paying its residents to give up their cars? Well, not exactly.
Car taxes here are made up largely of two parts: ARF and COE.
The ARF is an additional "registration fee", which is 100 per cent of a car's cost price. The COE is a certificate of entitlement, which is a publicly auctioned licence to own a vehicle in Singapore. The cost of this limited supply piece of paper is currently around $6,000, although it has in the past gone as high as $110,000.
To encourage a youngish vehicle population that is deemed cleaner and more roadworthy, the Singapore Government gives back part of these taxes if the car is taken off the road before its tenth year.
The earlier it is scrapped, the bigger the amount returned.
The cash rebate made news because before last September, refunds were given out as tax credits for a new vehicle.
If an individual does not wish to get another car, he had to sell the credits to a middleman – often to a used car dealer, and usually at a sizeable discount.
Despite numerous calls for the refund to be made in cash, the Government – or more specifically the Finance Ministry – has said "no". The reason given back then? It’s a rebate scheme, not a refund.
But Mr Raymond Lim changed that, two years into the job as Transport Minister. Mr Lim said the about-turn was because he wanted to "leave no stone unturned" in his quest to get people in Singapore to drive less and take public transport more.
"So this is one more stone that I'm turning up to have a look at, to see if it can be done," he told reporters in May.
In July, the Government announced that cash refunds will be granted from September. Four months into the new scheme, $410 million were disbursed – or about $100 million per month.
By now, it would have paid about half a billion dollars.
The question now must be: How effective will this be in encouraging drivers to give up their cars for buses and trains?
There is currently no evidence. But even if 1,000 people who had taken the cash refund did not go out and buy another car, it does not mean Singapore’s car population will shrink by 1,000.
This is because supply of COEs – the absolute control on vehicle population – is determined largely by the number of vehicles that are taken off the road.
So, even if 1,000 people gave up driving, the COE supply does not shrink by 1,000. In fact, every single one of the 1,000 scrapped car will be resurrected as a new car, thanks to COEs.
In that case, what good is the cash rebate scheme? Well, for one, it gives people choice. And choice is always good.
If someone had $20,000 worth of rebates in cash, he could go straight to a car showroom and place a downpayment for the latest model.
Or he could put the money away for a rainy day, especially at a time like this.
If the number of people who choose to do the latter is sizeable, it might pull down COE prices, even though it is quite likely that there will be fresh buyers who will take up every available piece of COE. That’s because overall demand will be lower.
Lower COE prices usually means lower car prices. And that’s also often a good thing.
One unintended positive spinoff from the cash refund scheme is that there will be less opportunity for scams to arise. The motor industry has in the past decade or so been hit by multi-million-dollar fraud cases involving tax credits from scrapped cars. These cases usually involved "credits" which were either non-existent or were from vehicles that were in fact not scrapped.
The fraudsters would also take out sizeable bank loans with these "credits", dragging financial institutions into the mess.
Since rebates for scrapped cars are now given in cash, the foggy paper trade that thrived on scrapped car tax credits has all but disappeared. And with it, the scams.