A no nonsense explanation on why cars in Singapore are so expensive

This article was first published on 7 April 2016 and updated with the latest information.

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.

WHY ARE CARS SO EXPENSIVE IN SINGAPORE?

In Singapore, we are fortunate that the costs of living are still pretty manageable, especially when compared to wages, especially in the areas of housing, education and food.

However, one aspect of life in Singapore that is notoriously expensive is the cost of owning a car.

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The government's position is that measures are necessary to keep the car population in check, and the mechanism they choose is economics, as opposed to other form of non-monetary controls, such as balloting or assigning licenses after needs-based assessments.

There are 5 main factors that determine the price of a brand new car in Singapore.

They are: 1) Open Market Value (OMV), 2) Additional Registration Fee (ARF), 3) Excise Duty & GST, 4) Certificate of Entitlement (COE), and 5) the local dealers' margin. We'll explain what these costs are.

#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 $33,215. In some European countries such as Germany, you would be able to get the car at about that price.

However, it currently retails in Singapore at around $188,000. The reason for this lies in the next 4 factors.

#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:

Vehicle OMV ARF Payable (%)
First $20,000 100% of OMV
Next $30,000 (i.e. between $20,001 to $50,000) 140% of OMV
Above $50,000 180% of OMV

For example, a Mercedes E200 that has an OMV of $55,386 will incur the following ARF cost.

Mercedes E200 ARF Payable
First $20,000 $20,000
Next $30,000 $42,000
Next $5,386 $9,695
Total $71,695

#3 EXCISE DUTY AND GST

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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 levied on the total OMV and Excise Duty amount.

For example, a Mercedes E200 that has an OMV of $55,386 will incur an Excise Duty of $11,077 (20 per cent of $55,386) and a GST of $4,652 (7 per cent of $55,386 + $11,077).

#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 $30,000 to $40,000.

#4 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.

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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 $85,010 with a sales price of $127,888. Hence, the dealer's margin for the car is about 33 per cent.

HOW A $19,146 TOYOTA BECOMES $97,988

Here is an example of how a $19,146 Toyota Corolla Altis becomes $97,988 in Singapore.

OMV $19,146
ARF $19,146
Excise Duty & GST $5,437
COE (Cat A) $32,309
Basic Cost (Including $220 registration fee) $76,260
Dealer’s Margin $21,728 (28%)
Final Sale Price $97,988

Source: sgCarMart

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.

This article was first published in Dollars and Sense.