SINGAPORE — With the number of diesel cars rising despite the imposition of a 10-cents-a-litre tax in 2017, experts believe the increase in diesel duty this year is likely to have a greater impact on the commercial vehicle market than on private car owners.

The tax increase is unlikely to make diesel car owners make the switch to petrol cars because the cost of owning a diesel-powered car is much lower compared to those running on petrol, one driver told TODAY.

In 2017, the Government imposed a 10-cents-a-litre diesel duty in an attempt to discourage drivers from using diesel vehicles as the diesel exhaust is highly pollutive.

Despite this, the number of diesel cars rose from 15,514 in 2017 to reach its peak of 17,253 in 2018, the Land Transport Authority’s statistics show. Overall, the car population also grew from 612,256 to 615,452 over the same period.

On Monday (Feb 18), Finance Minister Heng Swee Keat announced another round of diesel tax in his Budget statement, increasing it to 20 cents a litre, with immediate effect. Just like in the previous round, the Government permanently reduced the annual special tax on diesel-run cars and taxis by S$100 and S$850 respectively to cushion the impact of the new diesel duty. 

But for Mr Johnny Pua, who drives a diesel Mercedes-Benz GLC-Class, a second diesel tax does not really act as a disincentive.

Mr Pua, 48, who runs his own business distributing sports and fitness supplies, said that with a 20-cents-a-litre duty, he would have to fork out about S$100 a week — before a credit card discount — for a full-tank refill, just S$10 more than previously.

This is still cheaper compared to using petrol, he noted. Furthermore, his car can go as far as about 800km on a full tank, double the distance compared to a petrol equivalent, he said.

“Before I got this car, I was also using a diesel car. I started switching to diesel cars in 2014 or 2015 because it was too expensive to own a car that uses petrol,” said Mr Pua.

“When I pump diesel into my car, I am smiling happily because the cost is lower.” 

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A spokesperson for Komoco Motors said that diesel cars remain attractive for two key reasons: They have a higher torque and diesel cost is lower than petrol.

“The new diesel tax will somehow affect the market sentiment but there will still be people getting such cars,” added the spokesperson.

Still, the company does not expect a huge demand for its only diesel model — the Hyundai Santa Fe — because it comes with a price tag of about S$170,000.

DIESEL TAX HITS COMMERCIAL VEHICLES MORE

While there has been an increase in diesel cars, the number of taxis and commercial vehicles running on diesel has gone down. For taxis, the figure dwindled from 18,851 in 2017 to 15,089 as of last year. This is due to a drop in the total taxi population as well as cab operators switching to hybrid petrol-electric vehicles.

The diesel tax, however, might have more of an impact on commercial vehicles, said tax experts. The number of such vehicles running on diesel fell to 136,478 last year from 137,803 in 2017. 

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To help businesses adjust, Finance Minister Heng said that the Government will also provide a 100 per cent road tax rebate for one year and a partial road tax rebate for another two years for commercial diesel vehicles.

Ms Chew Boon Choo, a partner at accounting firm Ernst & Young who specialises in indirect tax, said that companies using such vehicles will still feel the impact of the additional excise duty as it is higher than the rebate.

“With the additional cost, there may be pressure on companies to pass on the cost to end-users. For those that choose not to do so, they will need to review their business operations or choice of commercial vehicles,” she noted.

Ms Elaine Ng, transport and logistics leader at accountancy firm PwC Singapore, said that there could be differences in impact between private car owners and businesses. “The latter will feel it more as they will likely clock in more mileage and consume more fuel in conducting their businesses relative to private car owners.”

Mr Pua agreed that the diesel tax would affect businesses more. He used to own two commercial vans running on diesel, but sold one due to the high costs.

With the new excise duty, he has to fork out about S$1,000 a month in fuel and road tax for his Toyota Hiace. Previously, it would have been about S$800.

“But with a 100 per cent rebate, that would reduce the cost to S$500. Even then, it’s only for a year. So, businesses will feel the pinch,” he added.