Budget 2020: Additional incentives to encourage use of more environmentally friendly vehicles
SINGAPORE: A series of measures, including additional incentives to purchase environmentally friendly vehicles, will be introduced as Singapore embarks on a vision to have all vehicles run on cleaner energy by 2040, announced Finance Minister Heng Swee Keat in his Budget speech on Tuesday (Feb 18).
“The domestic transport sector contributes a significant amount of greenhouse gas emissions. Vehicles with internal combustion engines, or ICEs, also contribute to pollution, adversely affecting our health and quality of life,” said Mr Heng, who is also Deputy Prime Minister. “For both public health and climate change reasons, we should progressively phase out the use of ICE vehicles towards cleaner alternatives, such as hybrids and EVs (electric vehicles).
“We will set a long-term strategic goal for Singapore to achieve this. Our vision is to phase out ICE vehicles and have all vehicles run on cleaner energy by 2040.”
As part of moving towards this vision, the Government will introduce the EV Early Adoption Incentive (EEAI), where those who buy fully electric cars and taxis will receive a rebate of up to 45 per cent on the Addition Registration Fee, said Mr Heng. Such a rebate is capped at S$20,000.
In a press release, the Land Transport Authority (LTA) said this initiative will run from Jan 1, 2021 to Jan 31, 2023 and will cost the Government an estimated S$71 million over the next three years.
"This EEAI will lower the upfront cost of an electric car by an average of 11 per cent and narrow the upfront cost gap between electric and ICE cars," said the LTA.
Also from January 2021, the road tax methodology for cars will also be revised to “better reflect the current trends in vehicle efficiency”, said Mr Heng. This will lead to an “across-the-board” reduction in road tax for EVs and some hybrids, he added.
Given that the Government has seen “promising results” from the Vehicular Emission Scheme which gave car buyers and taxi operators who choose cleaner car models an upfront rebate of up to S$20,000 and S$30,000 respectively, it is now introducing a similar scheme for light goods vehicles, added Mr Heng.
AN UPDATED VEHICULAR TAX STRUCTURE
However, the transition toward EVs will also have a “major impact” on Singapore’s tax revenues, said Mr Heng.
“Fuel excise duties today yield about S$1 billion per year, and are significant contributors to government revenues,” he said. “They are also a form of mileage tax, which discourages excessive driving, especially in private cars, and thus helps to reduce road congestion. But EVs do not pay fuel excise duties. Therefore, we will need to update our vehicular tax structure to preserve these two considerations.
“Ideally, we would like to implement a usage-based tax on EVs as an alternative to fuel excise duties. But the technology to do this properly on EVs is the Next Generation ERP system, and the distance-based charging using ERP is still several years away.”
In the interim, the Government will impose a lump-sum tax that will be built into the road tax schedule for EVs to “partly account” for the loss in fuel excise duties, said Mr Heng.
This lump-sum tax will be phased in over three years starting from January 2021, with the full quantum implemented by January 2023.
The revised electric car road tax schedule will comprise an additional "flat component" of S$700 per year, phased in over the three year period, as well as the existing variable component tiered according to power rating, and which will be revised to better account for improvements in vehicular efficiency, said the LTA.
"Under the revised road tax framework, mass market electric cars will incur an annual usage cost which is still about nine per cent lower than their ICE equivalents,' added LTA.
“Total road tax, after the revision in methodology and the new lump-sum tax, will be higher for some EV models,” said Mr Heng. “However, EV buyers can expect to enjoy substantial cost savings because of the significant EV Early Adoption Incentive.”
In addition, there are also plans to expand the public charging infrastructure for EVs, said Mr Heng.
While today there are about 1,600 charging points island-wide, the Government, with the help of the private sector, aims to deploy up to 28,000 chargers at public carparks around the island.
The Government will also “take the lead” and progressively procure and use cleaner vehicles to do its part for the environment, added Mr Heng.
“Here we are placing a significant bet on EVs, and leaning policy in that direction because it is the most promising technology,” explained Mr Heng. “It also requires a significant increase in demand to justify the infrastructure investment. This is a significant undertaking involving multiple agencies.”