Special Tax for Euro-V Compliant Diesel Vehicles

Date: 14 September 2009

Question No. 88 for Written Answer (by Mr Hri Kumar Nair, MP for Bishan-Toa Payoh GRC):

To ask the Minister for Finance whether the special tax will be imposed for Euro-V compliant diesel vehicles and, if so, what is the rationale for the imposition.

Reply by Finance Minister Tharman Shanmugaratnam:

Mr Hri Kumar asked whether the Government will impose the special tax on Euro-V compliant diesel vehicles. Diesel should be taxed the way petrol is taxed - on the volume consumed. However, we have not introduced a volumetric tax rate on diesel used for vehicles, as diesel is also used for non-transportation purposes, e.g. to power portable electricity generators, and this would cause problems of tax leakage.

For private diesel cars, a special tax was introduced as a proxy for a volumetric diesel tax. This special tax also took into account the higher particulate matter (PM) emissions of diesel cars.

In Budget 2008, in recognition of improved emission standards of Euro-IV diesel cars, the special tax rate for Euro-IV diesel cars was revised from 4 times the road tax to $1.25 per cc with effect from July 2008. This in effect ensured minimal differences in fuel consumption costs between Euro-IV and petrol cars. For a typical 1,600cc Euro-IV diesel car, this change translates to a reduction in the annual special tax from $2,976 to $2,000.

By the same principle, Euro-V compliant diesel cars will also be subject to the special tax in lieu of the volumetric fuel tax applied to petrol cars. In determining the special tax to be imposed on Euro-V cars, the Government will consider the improved impact of Euro-V cars on the environment, relative to Euro-IV cars.