Coe Prices – the Effect on Society
Coe Prices – the Effect on Society
NameStudent IDS Naresh NehvinS9113672DLu DaG0912138UShruti SaravanakumarS9373597HKevin Soh You LingS8711094ZG5 Introductory Economics Report[pic 1]COE Prices – The Effect on society[pic 2]Course Instructor: Prof Vishrut RanaDate of Submission: 14 November 2014IntroductionHonda, Toyota, Mitsubishi, Mazda, Nissan, Subaru, Kia, Hyundai, Volkswagen, Audi, Bayerische Motoren Werke (BMW), Mercedes-Benz; these are some of the many popular vehicle brands on the busy roads of Singapore. Due to the limited land area of 718 square km1, the Singapore Government has been continually implementing policies to regulate both vehicle ownership and usage. One of these includes the Certificate of Entitlement (COE) that crowned Singapore to become one of the most expensive places in the world to own a motor vehicle2. This report aims to analyse how the introduction of COE has tackled Singapore’s road congestion problem and its related issues by limiting vehicle ownership and its effectiveness in regulating vehicle population in Singapore.Certificate Of EntitlementA COE represents the right to vehicle ownership and usage of Singapore’s road space for a period of 10 years through a competitive bidding process. It is regulated by a Vehicle Quota System (VQS) and is further broken down into 5 categories in accordance to their engine capacity, as depicted in Table 1.COE was introduced in 1990 when the systems and policies at the time were ineffective. Back in the late 1960s, the Government attempted to control vehicle ownership through the introduction of an Additional Registration Fee3 (ARF), which was calculated based on a percentage of the Open Market Value4 (OMV) of the vehicle. ARF was introduced in 1968 and was initially set at 15% of a vehicles’ OMV. It then grew exponentially to 25% in 1972, 55% in 1974, 100% in 1975, and finally 175% in 1983. Currently, the ARF is charged based on a tiered rate, with a tax of 100% for the first $20,000, 140% for the subsequent $30,000, and 180% for the remaining OMV of the vehicle, if any.
Previously, ARF provided price certainty but not quantity certainty. On the other hand, COE now provides quantity certainty but not price certainty to consumers. The introduction of COE cooled down the rising ARF prices as COE took over as the primary means of regulating vehicle population. The quota for COE released into the market is determined by the Land Transport Authority (LTA) through the VQS based on the number of vehicles deregistered, accounting for a percentage of allowable growth in vehicle population, and other adjustments such as changes in taxi population, past-over projections or cancelled COEs; while the price is solely determined by the market.COE CategoryCOE Obtained (After February 2014)ACars with engine capacity up to 1600cc and maximum power output up to 97kW (130bhp)BCars with engine capacity above 1600cc or maximum power output above 97kW (130bhp)CGoods vehicles and busesDMotorcyclesEOpen (for any kind of vehicle)Table 1: Vehicle COE Category5COE Competitive Bidding SystemGiven the lack of success in relying on rising ARF levels to curb vehicle ownership, COE was implemented and agents who wanted to purchase a vehicle must first obtain a COE through the bidding process.During the bidding process, agents submit their bids online, known as the reserve price, to outbid each other for a COE. The COE open bidding system begins at $1 and will automatically revise the bid upwards at an increment of $1, until the reserve price is reached. At this point, an agent is out of the running unless he revises his reserve price upwards. At the closure of the bidding exercise, the agents whose bids are above or equal to the Current COE Price (CCP) will receive the certificate.