Time to scrap car transfer fee

Four months ago, the Government rescinded a longstanding policy when it ruled that motorists who scrap their cars can get a cash refund.
The move changed a 33-year practice of handing rebates for scrapped cars in the form of tax credits on a new car.
The change, initiated by Transport Minister Raymond Lim, was triggered by a suggestion by Ang Mo Kio GRC MP Inderjit Singh last February.
With the move, car owners stand to receive the full value of the car's scrap rebate.
Previously, an owner who did not want to use the tax credits to buy another car had to sell them to a dealer, who typically paid a discounted rate for them.
In these extraordinary times, perhaps it is timely to reconsider another long-time practice: Levying a transfer fee each time a car changes ownership.
The fee is 2 per cent of a perceived market value of the vehicle and is borne by the buyer.
Say a three-year-old Toyota Camry is deemed to be worth $50,000. The transfer levy would come up to $1,000. That is on top of an administrative charge of $10.
It may not seem like a lot of money, but between 1997 and 2004, the Government collected about $60 million a year on the transactions. The money, like all taxes, goes to the Consolidated Fund, which is used for various national projects.
But the reasons - if there are any - for a transfer fee should be scrutinised. When asked if it is meant to control vehicle ownership and usage or tax consumption, the Land Transport Authority, which administers the fee, merely says the levy "is part of our national taxation framework".
But why should it be "part of the framework" when vehicle owners here already pay myriad taxes and levies?
Car ownership and usage curbs include road tax, petrol duty, excise duty and Electronic Road Pricing.
If the fee is an attempt to discourage car ownership and control vehicle population, its role is superseded by an absolute tool - the certificate of entitlement (COE) system.
If the fee is a tax on consumption, then it is double taxation as the goods and services tax (GST) had already been levied on the car when it was new.
If it is like a stamp duty that is levied for homes that change hands - a move that discourages speculative trading that drives up property prices - then it misses the mark too.
That is because cars do not lend themselves to speculative trading. They are fast-depreciating assets. No one makes money when he sells his three-year-old BMW 3-series.
So the reasons to re-examine the transfer fee are twofold. One, the fee lacks relevance in the first place, even if it yields a tidy contribution to the tax coffers.
And two, this is a decent time to look at ways to lower cost.
There are a couple of ways to lower cost. Removing the transfer fee would ease the lot for austere consumers who are buying second-hand instead of new. The car is not always a luxury.
Many depend on it for work and business.
Doing away with the fee would also help the local used-car market, especially at a time like this.
While 75 per cent to 80 per cent of car buyers in recent years choose to buy new instead of used - because an abundant supply of COEs has made new cars rather affordable - things will change.
COE supplies will shrink sizeably from this year. So, when the economy recovers, demand for cars will be satisfied more and more by the used-car market. And the transfer fee will likely be a thorn in the side for more people.
By then, the tax revenue it contributes might become too attractive to give up. It is better if the weaning process starts now.
For a start, the fee could be halved to 1 per cent.
Or, instead of pegging it to the "market value" of the car, perhaps it could be based on its Open Market Value, which roughly translates to its cost price.
Like the call for scrap rebates to be paid in cash, there have been repeated requests for the transfer fee to be dropped or cut over the years.
Maybe its time has come too. Beyond the argument that it will help lighten the burden on the man in the street, abolishing or modifying the fee will go towards making Singapore a slightly less expensive place to work and do business in.
And on a macro scale, it could even reverse the wasteful trend of premature scrapping. For the past decade or so, hundreds of thousands of relatively new cars - some as new as two years old - have been taken off the road.
They are either sent to be scrapped or re-exported. This trend is not only wasteful for the individual vehicle owner but is also detrimental to Singapore's foreign exchange earnings. We lose hundreds of millions this way.
Doing away with the transfer fee should lift the local used-car market, which in turn makes it less attractive to re-export or scrap a perfectly good vehicle. And hence it keeps more money within the country.