Changes in the Additional Registration Fee (ARF) car tax, as announced in the 2023 budget, target the high-end car market. How will they affect this particular segment of the market?
Cars are expensive in Singapore — and we are not even talking about premium models. People living overseas are often shocked to find out that the amount of cash that could buy them a Mercedes Benz back home can only afford them a hatchback here! The price of premium and luxury cars in Singapore could easily get you a decent house in the US!
Prices of mid to high-end cars are going to shoot up with the latest round of changes to the vehicle tax system.
REVISED ARF TIERS
There are more changes in the ARF rates as announced by our Finance Minister in his 2023 Budget Statement. Last year’s budget brought about a revised 220% ARF rate on cars with an Open Market Value (OMV) exceeding $80,000. The changes were in line with the government’s commitment to make the vehicle tax system more progressive in tackling wealth inequality. Apparently that revision did not make the impact as expected by the government because this year they have announced even more changes to the ARF system.
The 2023 updates to the ARF system have a much-changed mid-tier structure affecting cars with OMV values within the $40,001 to $80,000 range. Previously the mid-tiers consisted of OMV value bands of $20,001 to $50,000 and $50,001 to $80,000. In 2023, the value bands are now $20,001 to $40,000, $40,001 to $60,000 and $60,001 to $80,000. The tax rates have also been increased for these mid-tiers as well as the $80,001 and above segments.
While buyers of cars up to $40,000 OMV aren’t affected, those in the $40,001 to $60,000 band are now taxed at 190% of OMV. Those in the market for cars in the $60,001 to $80,000 band have to shell out 250% of OMV and the $80,001 and above band, aka the luxury segment, has an eye-watering 320% of OMV tax rate!
What this means is that a buyer looking to buy a car with an OMV of $100,000 can expect to pay a total ARF of $200,000 after the tiered taxes are computed, a $40,000 increase from 2022. This may not seem like a lot to the wealthy, but if they have their heart set on buying top-end models, such as a Rolls Royce Cullinan, which has an estimated OMV of $422,000, the difference in ARF before and after the new tax structure could be as high as $362,000!
For 2023, there is also the introduction of a Preferential Additional Registration Fee (PARF) rebate cap. Previously, rebates could go up to 75% of a car’s paid ARF, but these will now be capped at a ceiling of $60,000. What this means is that $60,000 is as much as one can get from de-registering a car regardless of how much the ARF is (applicable to COEs obtained from February 2023 onwards).CAR-PURCHASING TRENDS
The fact that the luxury market has enjoyed solid sales performances even as COEs remain sky high shows the resilience of the luxury car market. Luxury brands such as Ferrari, Porsche and Rolls Royce have seen robust growth over recent years. Mercedes Benz recorded the most units registered (for authorised dealers) in 2022, surpassing Toyota (including Lexus) and long-time rival BMW. Mass car brands such as Hyundai and Mazda registered fewer than half of Mercedes Benz’s number – this may be attributed to non-luxury car buyers putting off car purchases amidst the high cost of living brought about by global issues like the pandemic and the on-going war in Ukraine as well as the rising COE prices.