Saturday, June 16, 2012

Taxing out vehicle ownership?

I have blogged and written earlier about how Singapore uses Certificate of Entitlement (COE) quotas to restrict vehicle ownership growth by mandating that all new vehicle owners buy COE permits in auctions. The high COE permit auction rates are expected to act as a prohibitive tax on vehicle ownership.

As Bloomberg reports (via Steven Sanders), the COE tax has risen precipitously in recent years, 
At S$86,889 ($67,000) just for a permit, the total price of a Volkswagen Passat in Singapore is about the same as the median US metropolitan home. A 25 percent jump in residents in seven years, coupled with the world’s highest proportion of millionaire households, has fueled a 10-fold surge in license prices over three years...
A new 2012 Passat sedan made by Volkswagen AG (VOW), the world’s second-largest carmaker, costs about $152,000 in Singapore, including the license... The median price of a U.S. metropolitan area home is $158,100, National Association of Realtors data show.
So-called open-category permit, which can be used to buy any type of vehicle, reached S$92,010 in April, the highest since the end of 1994 when a record of S$110,500 was reached. At the latest auction May 23, the licenses went for S$86,889, compared with S$8,501 three years ago. The permits give the right to own a car for 10 years. The next auction is tomorrow. Besides having to bid for certificates at auctions that are held every two weeks, Singaporeans also pay registration fees and taxes that can amount to 150 percent of the market value of a vehicle
Now, if this were India, atleast two things would have happened to derail the COE permit system. One, the populist backlash surrounding the steep rise in COE prices would have been enough to force the government to abort the system. Two, the magnitude of the tax would have triggered off a rush to game the system. Either ways, such a stringent COE permit system would have struggled to survive in India.

In countries like India, a more effective strategy would be to use multiple instruments aimed at discouraging both vehicle ownership and usage, the cumulative cost of all of which would reduce private vehicles on our roads. Apart from others, they should include a less stringent COE type system. Most importantly, a very good public transit system is an essential requirement for the success of any such intervention.  

Update 1 (5/9/2012)

The NYT reports that the municipal government of Guangzhou, a sprawling metropolis that is one of China’s biggest auto manufacturing centers, introduced license plate auctions and lotteries last week that will roughly halve the number of new cars on the streets. 

2 comments:

Jayan said...

It would be more useful if govt improve public transport by making it reliable, available and affordable. Just punishing owners or private vehicles is not correct.

KP said...

Dear Gulzar,

I find two of your comments amusing

"One, the populist backlash surrounding the steep rise in COE prices would have been enough to force the government to abort the system. Two, the magnitude of the tax would have triggered off a rush to game the system. Either ways, such a stringent COE permit system would have struggled to survive in India."

Actually, this is true of "any" attempt by our government to impose any discipline anywhere - and at the root lies the fundamental 'indiscipline' of the government itself.

As an aside, the number of cars in Singapore is a purely technocratic exercise ( not set by the sagacity of markets!) dictated by carrying capacity of the roads and significant revenue considerations of the state (Singapore).

The second statement that amuses is "a more effective strategy would be to use multiple instruments aimed at discouraging both vehicle ownership and usage" -frankly we do , from ridiculously designed and constructed roads (?) and flyovers, to a transport planning that lags traffic density by about 50 years - we have multiple blunt and perverse instruments - but then we would'nt be indian if we did not enjoy the perverse pleasures of self. inflicted masochism.

I suspect that if there is one department that has created many indian dollar millionaires both within and outside government, and continues to do so - it must be the transport and public works department. ( Also, proving that we are a monsoon economy - that is reflected in two continuous professions - one, agriculture the other repeatedly laying the same road ever so often!!)

I suspect that when we say transit system there is an implied nod to either lifting it off the road ( elevated) or underground (tube) or superfast trains (track) - effectively acknowledging that the roads are sacrificed for the development of politicians, babus and contractors - while we may have to elevate our sights for any improvement (development for the masses), elsewhere.

regards, KP.