Time for a fundamental rethink of the COE
SINGAPORE’S vehicle quota system has always been a regressive tax on vehicle ownership, but prices have reached a point where there is no longer any trace of equitability. For Singaporeans who are neither wealthy, nor professional drivers nor business owners, owning a car is no longer affordable.
It is time to fundamentally rethink the certificate of entitlement framework to make it more equitable. Such a review must be bold enough to question basic assumptions, such as the purpose of the certificate of entitlement (COE) and the need to price it through an auction.
The COE auction hurts the poor the most. The cost of vehicle ownership is set through an auction system where everyone from the poorest to the wealthiest vies for the same limited pool of COEs. In the latest bidding round, a COE for the least-expensive class of cars cost S$103,721. That is more than 10 times the median monthly household income of S$10,099 in 2022. It is also significantly more than the pre-COE cost of a car, which means that the regressive impact of the COE far outweighs progressive taxes such as the Additional Registration Fee (ARF), which is based on the value of the car.
Admittedly, nobody has a right to car ownership, and Singapore has a car-lite stance. But that does not mean car ownership is not valuable. While it is important to encourage the adoption of public transport, the reality is that many households and small businesses have transportation needs that still cannot be easily met by our public transportation system.
Access to a private vehicle improves productivity and quality of life, and is especially uplifting for the less fortunate segments of society. It could mean the ability to take on better-paying work farther from home, or for school-going children to spend less time commuting. For small businesses, it could be the difference between profit and loss. Leaving the COE in its current form hinders social mobility and widens inequality within our society.
There have been suggestions to tweak the COE, for instance by creating a separate category for private-hire vehicles and taxis, or by banning the conversion of private-hire vehicles into non-commercial uses. Even tax incentives for green vehicles have been blamed. But those are unlikely to work as long as Singapore’s car-buying population continues to increase while the car population growth rate policy remains at zero.
It might be time to consider more radical changes, including whether there is a need for market-rate COEs. The vehicle population is already controlled via the quota, while the ARF already taxes ownership, and is progressive to boot. Neither of those goals requires the COE to be subject to market prices.
For instance, a lottery mechanism could offer a way to give every Singaporean, regardless of affluence, a chance at vehicle ownership. Concerns that “lucky” individuals can profit from a secondary market can be addressed. The lottery could be a first layer of distribution, for example, with bans on transfers, and unused allocations reclaimed. Those reclaimed allocations could then be subject to an auction as they are now, if the government’s concern is revenue for the budget. It should be noted, however, that COEs contributed just over 3 per cent of Singapore’s annual budget inflows over the past five years, and shrinking that source of income should not make too big of a dent on the coffers.
COEs at recent prices are no longer simply a vehicle population control mechanism; they have started to perpetuate an inequitable system. It is time to fix them.
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