Changes to the Carbon Emissions-based Vehicle Scheme should encourage the drive towards more environmentally sound vehicles while punishing the big emitters.
The changes, effective from July, mean fewer cars will get rebates while the surcharges on less "green" vehicles will be much heftier.
Many motor traders had felt the two-year-old scheme was too lax and had anticipated the alterations announced yesterday.
Car dealer and taxi operator Neo Nam Heng said: "Even big and luxurious cars from Mercedes-Benz, Audi and BMW are entitled to rebates. I don't think that was the intent of the scheme."
Finance Minister Tharman Shanmugaratnam said nearly two-thirds of new cars registered last year qualified for rebates, which ranged from $5,000 to $20,000 for cars and $7,500 to $30,000 for taxis.
And only 5 per cent attracted surcharges. The rest were in the neutral band, attracting neither incentives nor disincentives.
"By tightening the scheme, the Government will encourage really green vehicles," Mr Neo said.
Under the revised scheme, cars and cabs must emit no more than 135g/km of CO2 to qualify for a rebate - down from 160g/km previously.
The new maximum rebate will be $30,000 for cars and $45,000 for cabs if they emit no more than 95g/km of carbon. The top rebates now are $20,000 for cars and $30,000 for cabs that emit no more than 100g/km of carbon.
Electric cars, petrol-electric hybrids and diesel models will be among those that qualify for the revised top-tier incentive.
But more cars will attract penalties from July, starting with those that emit more than 185g/km of CO2. This is down from the cut-off of 210g/km now.
The $5,000 surcharge will apply to the Audi A7, Honda Odyssey, Porsche Boxster, Lexus ES250 and Volvo S60 T5, among others.
Vehicles that will incur the heftiest surcharge of $30,000 ($45,000 for cabs) include the Volvo XC90, Ferrari 458 and Rolls-Royce Wraith.
Asian Clean Fuels Association executive director Clarence Woo said: "The world over, countries are looking at improving fuel efficiency. The question is whether the auto industry can produce better and better engines."
The European Union, for instance, is aiming to achieve a fleet average of 130g/km by this year and 95g/km by 2021.