Singapore is a modern metropolis famous for many things: a dazzling skyline, the world famous Changi airport, and a peculiar ban on chewing gum. One of the things it is not famous for is affordable cars, quite the opposite in fact. Singapore has some of the highest car prices in the world, with even modest entry level vehicles out of the grasp of the upper middle class. Just check out the cost of buying a car in Singapore compared to the cost of buying the same car in Canada (CAD and SGD are approximately equivalent in value):
|Car model||Price in Canada (CAD)||Price in Singapore (SGD)|
Why are car prices so high in this island city-state? Let’s take a look at some of the factors contributing to the high cost of car ownership in Singapore.
The Base Cost of a Car
The starting price of any car in Singapore is essentially the same as the generally accepted cost of the car globally, known as the Open Market Value (OMV). In SIngapore, this is determined by the Singaporean government and the Manufacturer Suggested Retail Price (MSRP), and takes into account freighting and other associated costs to get the car from its manufacturer to the dealership. In some countries, such as the U.S. or Germany, the price a consumer pays for their vehicle is about the same as the OMV. This means that someone in the U.S. wanting to buy a Mercedes CLA 250 Coupe would pay fairly close to the MSRP of CAD$43,000. However, someone in Singapore looking to purchase the exact same car could expect to pay somewhere in the vicinity of CAD$173,000. So why does the same car in Singapore cost up to 4 times more?
Taxes, Taxes and More Taxes
The Singaporean government primarily uses three different forms of tax to dramatically increase the cost of owning a car in the country. These taxes are known as the Additional Registration Fee (ARF), Excise Duty and GST, and Certificate of Entitlement (COE). Whilst they all sound like different charges, in essence they all amount to being taxed on a vehicle. Let’s break down how that Mercedes CLA 250 Coupe went from the OMV of $43,000 to the somewhat outrageous $173,000 someone would pay in Singapore for driving the same vehicle.
Excise Duty & GST
The first additional cost that is tacked on to the price of a car in Singapore is the Excise Duty and GST charged at the border when a car enters the country. Excise Duties and GST are common taxes around the world and apply to a great many products going in and out of pretty much every country globally. Commonly taxed products coming into a country would be liquor, tobacco and designer goods. For the sake of simplicity, we will do all of our calculations in Canadian Dollars. In Singapore, all vehicles are subject to an Excise Duty of 20% of the OMV. This means that our CLA 250 Coupe would have just had an additional $8,600 added to its price tag as it comes off the ship. On top of this duty is the GST, which in Singapore is 7% of the combined OMV and Excise Duty levied on a vehicle. For the Coupe, this would be an additional $3,600. This means that the CLA 250 would now cost $55,200 (OMV $43,000 + Excise Duty $8,600 + GST $3,600) before it even reaches the dealership.
Additional Registration Fee
One of the most shockingly high taxes applied to vehicles in Singapore is the ARF. This tax is required of all vehicles in the country, but is not a flat fee like drivers in other countries would be used to when registering their vehicle. For example, someone buying the Mercedes CLA 250 Coupe in New York from a dealership would be expected to pay a $75 registration fee which entitles the car to drive on the roads in the U.S. This is a flat fee for all vehicles, regardless of their OMV. By contrast, a Singaporean would be expected to pay not only a flat fee of $220 to register their vehicle, but also the ARF which is based on the OMV of the car. The ARF is broken into 3 parts: for the first $20,000 of OMV, the ARF is 100%, for $20,001 – $49,999 the ARF is 140% of OMV, and for $50,000 and above, the ARF is 180% of OMV.
In the case of our Mercedes, this would break down as follows:
|Total OMV $43,000||Total ARF $52,200|
Including the $220 flat registration fee, the Excise Duty & GST, and now the ARF, the cost of the CLA 250 Coupe is now $107,620. But wait, there’s more!
Certificate of Entitlement
The final and perhaps more infamous tax the government applies to car ownership in Singapore is the COE. This is a mandatory certificate that must be purchased in order to allow a car to drive on the road in Singapore, and entitles the owner to drive a car for 10 years (determined to be the average lifespan of a vehicle). At the end of the 10 years, the car owner can apply for an extension of another 7-10 years, or can choose to scrap the car and purchase a new one and pay the new COE for the car. Alternatively, a car owner could choose to forfeit their COE early and receive a partial refund of the ARF of their vehicle, and release their COE back into the market. There are a finite number of these certificates available which has led to their exorbitant price being mainly dictated by market forces: their cost can skyrocket in times of high vehicle demand, and people can be paid under the table to forfeit their COE early so that another car buyer can take over their place on the roads.
Certificates of Entitlement usually hover between $37,000 to $48,000, so for the sake of averages let’s say its $42,500. Our already steeply priced Mercedes has just jumped to $150,120.
Up until now we have only talked about the government getting its slice of the pie in terms of the cost of a vehicle in Singapore. Obviously, we also have to take into account the car dealership wanting to turn a profit from selling these vehicles! The dealer’s margin needs to cover the dealership’s operating costs, whilst also allowing for a profit to be made from the sale of any vehicle. These numbers can vary widely between dealerships and car models, from the low teens to almost 50% additional on top of the base cost of the car. Using a car price aggregator for Singapore plus our already calculated base cost of $150,120 for the Mercedes CLA 250 Coupe, we can see that the average dealer’s margin on this car would be approximately 15%.
The Final Cost
Thus, the final cost of our $43,000 MSRP Mercedes CLA 250 Coupe in Singapore would be:
|Dealer’s margin||$22,500 (15%)|
So we can see that even a mid range Mercedes that would be relatively affordable for the middle class in the United States would be well out of reach to all except the highest earners in Singapore. Even if you went down to a very basic entry level car like the Hyundai i30, you’d still be paying $97,500. So why exactly does the government impose all of these excessively high tariffs on owning a car in Singapore?
Probably the single largest factor behind Singapore’s government’s decision to make owning a car so prohibitively expensive is the very pragmatic reason of not having enough space. As an island city-state, Singapore has an area of just 721.5 square kilometers – approximately half of the total area of Los Angeles. However, within that tiny space they have a whopping 5.6 million inhabitants compared to Los Angeles’s 3.7 million. Clearly, if all 5.7 million people wished to own a car in Singapore, they would run out of space to drive and park the vehicles very quickly. Thus, the government used basic economic forces to curb demand for vehicles and have kept car ownership to just 12 cars per hundred people. Coupled with the exceedingly high prices of petrol and parking within the city, and owning a car is simply not very attractive to a vast majority of the population.
A Viable Alternative
To entice its citizens to forget about owning a car, the government has invested vast sums of money into their local transit system, known as the Mass Rapid Transit (MRT). Comprised of almost 200 km of routes and 119 stations, the MRT boasts a ridership of 3.1 million people daily – over 50% of the entire population! Their fully automated lines also make up the single largest automated metro network in the world, and run 19.5 hours per day. Coupled with one of the cheapest fare structures in the modern world, it’s pretty much a no brainer for the majority of Singaporeans looking to get around.
Another more tangential and long term goal of the government for limiting car ownership in the country is the prospect of rising sea levels due to global climate change. As an island, Singapore is amongst the most susceptible to loss of life, property and economic stability as viable land is lost to the steadily climbing water levels. As public transport releases significantly less greenhouse gas per rider than owning an individual car, it is clearly in the government’s best interests to have as many people as possible utilising the extensive MRT network.
Supply and Demand
When you strip away everything else, the extremely high cost of owning a car in Singapore is a simple case of supply vs demand. Seeing as the supply of space within the country is so exceedingly finite, economics dictates that the cost will need to rise substantially to a point where demand is tempered enough to reach an equilibrium. The government has stepped in to do its part in keeping the streets of Singapore moving through imposing high taxes on new vehicles, and it reinvests at least some of that additional revenue into building out the MRT and keeping the city a sparkling metropolis in South East Asia. So if you’re looking to buy a car in Singapore anytime soon, you might want to look into remortgaging your house to do so!