starscream
11-07-2005, 05:09 PM
Samuel Ee - 24 June 2005
The Business Times. Motoring
THE government's collection of new car taxes may not be enough to offset existing Parf and COE rebates if today's passenger car COE results continue to show a general downward trend in premiums. And if the situation persists, the Land Transport Authority may have to seriously consider giving cash refunds for Parf.
As registration taxes gradually fall, car owners who trade in their vehicles for a new one often face the problem of a scrap value which is greater than the taxes for the new car.
This is compounded because Parf (Preferential Additional Registration Fee) is a rebate which is not refunded in cash to the car owner when his vehicle is deregistered and scrapped. Rather, the LTA says it can only be used to offset the taxes, fees and COE related to the purchase of a new vehicle or sold to a third party at mutually agreed rates.
Currently, this 'mutually agreed rate' comes at a 7 per cent discount due to a glut in Parf papers in the market. So, a person with a Parf rebate of $50,000 can only expect to sell it for $46,500.
'Two to three weeks ago, it was about 5 per cent,' said a senior executive of a popular Japanese car dealership. 'Now a discount of 6 to 7 per cent is common. The government should really consider giving back cash instead of a paper rebate.'
When the Parf value of an existing car being scrapped exceeds the amount of registration taxes and COE premium for the new car, the Parf paper is 'split' and its excess carried over and used to offset another new car purchase.
But there is a potential problem with this. If premiums for COE, or certificates of entitlement, keep falling, there will be more and more of this remainder to roll over because there's less and less from the new car to offset. This could ultimately result in a situation where all the paper out there adds up to more than the taxes collected by the LTA.
Take the example of a 2002 Toyota Camry. It has an OMV or open market value of about $31,000. Taking an average COE of $32,000, if it was deregistered today, its scrap rebate would be 130 per cent of $31,000 plus seven-tenths of $32,000, or a total of more than $62,000.
On the other hand, a 2005 Camry has an OMV of about $29,000 and a COE premium of about $16,000 - or a total of $45,000 which can be offset. If the owner of the 2002 Camry were to deregister his car and use the Parf rebate to buy a new Camry, he would have a Parf overhang of $17,000, which has to be sold to a dealer and used to offset the purchase of someone else's new car.
The total potential shortfall is staggering. The ARF (Additional Registration Fee) of a new car is 110 per cent of OMV. Cars registered before May 2002 and less than five years old have a Parf rebate of 130 per cent of OMV. There are about 85,000 cars on the road below five years of age which can
be scrapped at the 130 per cent rate.
Further down the timeline, there are almost 40,000 more cars aged six or seven years old with a Parf rebate of 120 or 110 per cent respectively.
Together, these potential deregistrations total more than 120,000, compared to the current COE quota year's potential maximum of 106,331 passenger cars.
As long as COE premiums head south because of either economic conditions or a lack of new models to entice the buying public, the LTA will have to consider giving cash refunds simply because the Parf rebates may not be completely absorbed. The rising discount rates for Parf paper are proof that this excess situation exists.
Alternatively, the COE quota can be tweaked such that a smaller number of certificates will lead to higher premiums. This, however, is unlikely to be an popular move. Either way, something has to be done soon.
This article first appeared in BT on June 22, 2005
The Business Times. Motoring
THE government's collection of new car taxes may not be enough to offset existing Parf and COE rebates if today's passenger car COE results continue to show a general downward trend in premiums. And if the situation persists, the Land Transport Authority may have to seriously consider giving cash refunds for Parf.
As registration taxes gradually fall, car owners who trade in their vehicles for a new one often face the problem of a scrap value which is greater than the taxes for the new car.
This is compounded because Parf (Preferential Additional Registration Fee) is a rebate which is not refunded in cash to the car owner when his vehicle is deregistered and scrapped. Rather, the LTA says it can only be used to offset the taxes, fees and COE related to the purchase of a new vehicle or sold to a third party at mutually agreed rates.
Currently, this 'mutually agreed rate' comes at a 7 per cent discount due to a glut in Parf papers in the market. So, a person with a Parf rebate of $50,000 can only expect to sell it for $46,500.
'Two to three weeks ago, it was about 5 per cent,' said a senior executive of a popular Japanese car dealership. 'Now a discount of 6 to 7 per cent is common. The government should really consider giving back cash instead of a paper rebate.'
When the Parf value of an existing car being scrapped exceeds the amount of registration taxes and COE premium for the new car, the Parf paper is 'split' and its excess carried over and used to offset another new car purchase.
But there is a potential problem with this. If premiums for COE, or certificates of entitlement, keep falling, there will be more and more of this remainder to roll over because there's less and less from the new car to offset. This could ultimately result in a situation where all the paper out there adds up to more than the taxes collected by the LTA.
Take the example of a 2002 Toyota Camry. It has an OMV or open market value of about $31,000. Taking an average COE of $32,000, if it was deregistered today, its scrap rebate would be 130 per cent of $31,000 plus seven-tenths of $32,000, or a total of more than $62,000.
On the other hand, a 2005 Camry has an OMV of about $29,000 and a COE premium of about $16,000 - or a total of $45,000 which can be offset. If the owner of the 2002 Camry were to deregister his car and use the Parf rebate to buy a new Camry, he would have a Parf overhang of $17,000, which has to be sold to a dealer and used to offset the purchase of someone else's new car.
The total potential shortfall is staggering. The ARF (Additional Registration Fee) of a new car is 110 per cent of OMV. Cars registered before May 2002 and less than five years old have a Parf rebate of 130 per cent of OMV. There are about 85,000 cars on the road below five years of age which can
be scrapped at the 130 per cent rate.
Further down the timeline, there are almost 40,000 more cars aged six or seven years old with a Parf rebate of 120 or 110 per cent respectively.
Together, these potential deregistrations total more than 120,000, compared to the current COE quota year's potential maximum of 106,331 passenger cars.
As long as COE premiums head south because of either economic conditions or a lack of new models to entice the buying public, the LTA will have to consider giving cash refunds simply because the Parf rebates may not be completely absorbed. The rising discount rates for Parf paper are proof that this excess situation exists.
Alternatively, the COE quota can be tweaked such that a smaller number of certificates will lead to higher premiums. This, however, is unlikely to be an popular move. Either way, something has to be done soon.
This article first appeared in BT on June 22, 2005