The tiered-ARF system makes under-declaration of OMV almost
irresistible
It has been almost a year since the
tiered-ARF (additional registration fee) structure was introduced. The move was
a noble attempt at enhancing progressivity in the car taxation system. The idea
seems sound – with a flat (and relatively low) ARF, buyers and sellers of more
expensive cars “benefit” because the ARF and COE are “cheap” in relation to the
value of their rides. In a way, they are not paying their full due.
Like income tax, a tiered-ARF system
taxes the wealthy more. As taxes go, tiered-ARF is also a targeted consumption
tax, which is arguably better than a broad-based approach, such as an overall
increase in income tax, adopted by some other countries.
Here is how tiered-ARF works for the
first $20,000 of a car’s open market value (OMV), an ARF of 100 percent
applies; for the next $30,000 of OMV, 140 percent applies; and for any amount
above $50,000, 180 percent applies.
The revised tax structure affects more
than 85 percent of cars sold here. According to Land Transport Authority data,
less than 14 percent of the 197 car models listed here are not affected by
tiered-ARF. More than 50 percent attract the next-tier tax of 140 percent, and
35 percent attract the 180 percent tax.
A 2-litre Toyota Camry with an OMV of
$23,519 will incur $24,927 in ARF, or $1,408 more than before tiered-ARF was
introduced. The popular BMW 520i, with an average OMV of $41,316, will attract
$49,842 in ARF, or $8,526 more. A Rolls-Royce Phantom with an OMV of $632,000
will incur $1,088,000 in ARF – $456,000 more.
Herein lies the problem of the system:
It poses a strong temptation for sellers to under declare OMVs. Already,
under-declaration of OMVs has been a scourge that the authorities cannot seem
to eradicate. With tiered-ARF, they will have an even harder time.
A 2-litre Toyota Camry with an OMV of $23,519 will incur $24,927 in ARF, or
$1,408 more than before tiered-ARF was introduced.
The Tiered-Arf tax structure affects
more than 85 percent of cars sold in Singapore
Recently, a sports car agent revealed
that “with factory support”, the OMV of its top-end model was reduced by
$100,000. That amount is equivalent to the combined OMVs of nearly six Toyota
Corollas. The move allowed the car to be priced at about $850,000. Otherwise,
it would have cost close to $1 million (before COE and optional equipment).
A sports car agent revealed that “with factory support”, the OMV of its
top-end model was reduced by $100,000.
For some cars, no amount of “factory
support” can help. A small fleet of Pagani Huayras had to be re-exported from
Singapore because the price tag of each supercar soared from $3.6 million to
more than $5 million with tiered-ARF.
The new system has also made it more
attractive for parallel importers and second-hand car dealers to bring in
“imported used cars”. As used cars, their OMVs are significantly lower. But the
thing is, many are not used cars. They are brand new vehicles declared as used
ones. In a couple of instances, models which have not even been launched here
were brought in as “imported used”. Because of tiered-ARF, the savings an
importer gets from declaring a car as “used” is phenomenal.
So in trying to create a fairer system
(taxation-wise), the Government may inadvertently pave the way for an uneven
playing field. And it can only get more uneven, as more players find ways to
overcome the punitive system.
They have little choice. Sales of
high-end cars have slowed to a crawl. In the last quarter of 2013, Porsche
averaged 19 cars a month – down from 30 to 40 in the first half. Bentley’s
monthly sales more than halved to between three and seven cars in the last
quarter, while Rolls-Royce averaged only one limo per month. Ferrari saw zero
sales in some months, while Lamborghini failed to sell even one supercar in the
final quarter. Combined with the effects of the curb on car loans, the high-end
car segment will remain in the doldrums for several more months (if not years).
So, manufacturers will definitely find
ways to lend “support” to their dealers here. And there will be more inventive
ways to keep OMVs as low as possible. If the tiered-ARF system is to work,
Singapore Customs needs to be more vigilant. Rules may have to be rewritten to
plug loopholes, and enforcement clearly needs to be tighter and swifter.
There will be more inventive ways to keep OMVs as low as possible.
Otherwise, the aim of the tiered-ARF
structure, which is to inject more fairness into the car taxation system, will
not be fully achieved. Those who obey the law to the letter and in spirit will
find themselves economically worse off than those who do not. And that is not
fair.
