No nonsense explanation on why cars in Singapore are so expensive

In Singapore, there is no such thing as getting a good car deal that makes financial sense. A car, even a "cheap" one, is a luxury that the average Singaporeans (despite our high spending power) will struggle to afford. Even among the upper middle class in Singapore, a car isn't cheap to own.

If you ever wondered why cars in Singapore are so expensive, then this article is just right for you.

Factors That Determine The Final Price Of A Car In Singapore

There are 5 main factors that would determine the price of a brand new car in Singapore. They are the Open Market Value (OMV), the Additional Registration Fee (ARF), Excise Duty & GST, Certificate of Entitlement (COE), and local dealers' margin.

(1) Open Market Value (OMV)

Think of a car's OMV as a baseline guide to the original price of the car. If not for taxes, COE, ARF or other form of taxes, we could have bought the car at the OMV price. The OMV prices we see are what some people in other countries are paying for the exact same car.

For example, a brand new Audi A4 has an OMV of about $32,000. In some European countries such as Germany, you would be able to get the car at about that price.

In Singapore, it currently retails at $161,000. Why is that so? Here are the other factors why.

(2) Additional Registration Fee (ARF)

In Singapore, all cars would be subjected to the ARF. The ARF is a form of tax imposed on all cars during registration. The ARF is calculated based on the OMV of the vehicle.

The ARF is calculated based on the following

Photo: Dollars and Sense

For example, a Mercedes E200 that has an OMV of $49,113 will incur the following ARF cost.

Photo: Dollars and Sense

(3) Excise Duty And GST

Excise Duty is a form of tax imposed on specific goods within a country. For example, in Singapore, we have additional taxes on goods such as alcohol, cigarettes and petrol.

The Excise Duty on cars in Singapore is 20 per cent of OMV. Once the Excise Duty of 20 per cent is added to the OMV, a further 7 per cent GST will be tax on both the amount for the OMV and Excise Duty.

For example, a Mercedes E200 that has an OMV of $49,113 will incur an excise duty of $9,822 (20 per cent of $49,113) and a GST of $4,125 (7 per cent of $49,113 + $9,822),

(4) Certificate Of Entitlement (COE)

Even non-car owners would know about the COE. The COE is "market-driven" certificate that allows a car to be driven on Singapore road for 10 years. COE prices can increase steeply during period of high car demand, which in turn cause prices of cars to increase.

COE prices are currently between $40,000 to $50,000.

(5) Dealers' Margin

Last but not least, the car dealers that are selling you the car would also need to cover their own overheads and earn a profit for themselves. We call this dealers' margin. Dealers' margin could range from as little as about 15 per cent for affordable brands to as high as 50 per cent or more for luxury car brands.

To calculate what the dealers' margin is, simply sum up the OMV, ARF, Excise Duty, GST & COE. SGCarmart refers to this as the "basic cost." We then compare the basic cost against the actual sales price, with the difference being the dealers' margin.

For example, a Mazda 6 currently has a basic cost of $92,520 with a sales price of $122,888. Hence, the dealer's margin for the car is about 33 per cent.

How A $17,000 Mitsubishi Becomes $104,000

Source: SGCarmart

Here is an example of how a $17,000 Mitsubishi ASX becomes $104,000 in Singapore.

Now that you know how much more you are overpaying for a car compared to the rest of the world, perhaps it is time to reconsider the idea of whether buying a car in Singapore is really going to be worth the hard-earned money that you are going to be paying.

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DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.