Currently, the diesel tax is four times the annual road tax of a petrol car with an equivalent engine capacity. But, from July 1 2008, the formula is changed to $1.25 per cubic cm of the car’s engine displacement.

That works out to be $2,500 for a 2,000cc car, down from $4,856 now, or a 49% cut.

The change in the diesel tax formula is probably to pre-empt a 15% reduction in road tax come July 2008. By un-pegging the diesel tax from the road tax, the Government will have greater room to manipulate the demand for diesel passenger cars.

If the intention of the tax cut is to encourage greater use of diesel vehicles, then it obviously doesn’t go far enough. Some analysts estimated that one would need to drive 70,000km per year just to offset this tax.

The signs are that the Government is waiting for Euro V vehicles to be more widely available after 2009.

I think it’s rather unfortunate. Diesel cars have lower CO2 emissions, better acceleration, and superior fuel economy. Why wait until 2010?

If pollution is a concern, then the number of old Euro II diesel commercial goods vehicles and taxis plying Singapore’s roads should be much greater cause for concern.

Once again, as with the incentives for hybrid cars, it’s a matter of “too little, too slow”.

So do 4.5 million other Singaporeans.

The problem is that there is limited land in Singapore. So there are various measures in place to limit the number of cars on the road, such as the COE car ownership quota system and high car taxes.

The road tax is calculated based on the engine capacity of the vehicle, and designed to encourage small cars especially 1600cc and below.

I don’t quite agree with this but at least it makes sense: small-engined cars are, as a rule of thumb, more fuel-efficient than those fitted with thumping V8 powerplants.

Singapore is a city-state, so we spend most of our time in start-stop traffic. This is exactly the scenario that hybrid cars are designed for.

Hybrid cars, such as the Toyota Prius and Honda Civic Hybrid, have a conventional petrol and an electric motor. At low speeds, they are powered solely by the electric motor. The petrol engine only kicks in at higher speeds, making them eminently ideal for urban driving.

So why is Singapore discouraging the ownership of hybrid cars?

OK, first a quick review of the car tax system in Singapore:

High taxes called Additional Registration Fees (ARF) are levied on all passenger vehicles in Singapore. A portion of this ARF is refunded back to you upon de-registration before 10 years. The ARF is currently set at 110% of the Open Market Value (OMV) of the vehicle (OMV is essentially the cost of the car including freight to Singapore).

Luckily, hybrid vehicles enjoy a green rebate. According to Land Transport Authority’s One Motoring web site:

For natural-gas driven, electric or hybrid cars registered between 1 January 2006 to 31 December 2007, a rebate equivalent to 40% of the Open Market Value (OMV) can be used to offset the Additional Registration Fee (ARF) payable at registration.

So instead of 110%, hybrid cars are only levied 70% of OMV for the ARF. So far, so good.

Unfortunately, the ARF rebate I mentioned earlier (known as Preferential ARF or PARF), is calculated based on the ARF. Which means, the lower the ARF the lower the PARF rebate.

So all the green rebate does is to lower the initial purchase price. But it also results in a lower tax rebate when you de-register your car. So the nett impact is basically… not much.

Which is still better than nothing, some might argue.

Then the LTA decides to tax hybrid vehicles based on their power output, instead of the engine capacity as for their petrol counterparts.

* Effective from 1 September 2002, ** Effective from 1 September 2007 (8% reduction in road tax)

Isn’t it unnecessarily complex? It also penalises hybrid cars for having more power: Design an efficient engine that generates more power, and your reward is higher road tax.

Let’s take a look at an example, say the luxurious and (relatively) fuel-efficient Lexus RX400h.

• Engine capacity: 3311cc. 6-month road tax for petrol car of equivalent engine capacity: $1,836
• Power rating: 268bhp (200kW). 6-month road tax for hybrid RX400h: $2,975

That’s a staggering $2,278 more per year you have to pay for the privilege of driving an eco-friendly, fuel-efficient hybrid vehicle in Singapore.

Ostensibly, the reason behind the power-based calculation method was to prevent motorists from circumventing the road tax system by fitting a large electric motor to a small petrol engine. But this hasn’t been an issue yet, surely it could be swiftly dealt with when it does happen.

Instead, all it has achieved is to penalise and discourage eco-conscious buyers. It is taking 2 steps forward, and 1.5 steps back.

It’s almost as absurd as the state of North Carolina fining a motorist US$1000 for using environmentally friendly bio-diesel in his converted van.

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