It is widely acknowledged that our road tax system is heavily skewed in favor of the small engine capacity car. I will not bore you guys with the detailed mathematical formula of the road tax system here on our sunny island (you can read about it here). It will suffice to say that any car with an engine capacity larger than 1,600cc is likely to face a pretty hefty road tax bill. A 3,000cc car attracts an annual road tax of $2,386 compared to $744 for a 1,600cc one. The road tax on the 3,000cc car can pay for both my road tax and insurance with a couple of hundreds to spare! With such a policy in place, it doesn't take a genius to figure out which cars will sell best in Singapore. No wonder Kah Motors brought in the 1,600cc Civic specially for the Singapore market!

The main justification why drivers should be taxed lies in the economics concept of negative externalities. Drivers create pollution which affects others; they also consume scarce fossil fuels. These are costs which society as a whole will bear rather than the individual driver. The tax aims to impose some of these costs back on the driver when they are deciding whether to drive or to use other forms of transport.

However, by taxing based on displacement, the assumption seems to be that a larger displacement vehicle will consume more fuel and pollute more (and thus should pay more tax). However, this assumption no longer stands. With current advances in automotive technology, I am sure we all know that there can be larger but more frugal and less pollutive engines. Using displacement as a benchmark is a poor and blunt proxy for the true purpose of road tax. If I drive a larger displacement vehicle but it is actually greener because the engine technology is advanced, I still get penalised! That doesn't seem fair, does it?

And I believe that I am not the only one who thinks this way. There is, in fact, some acknowledgment globally that vehicle owners should be taxed based on the pollution their vehicles generate rather than displacement. In the UK, for vehicles registered after 2001, road tax is imposed mainly based on the amount of CO2 emissions that the vehicle emits. Before 2001, UK had a road tax based on displacement as well. This is indeed a welcome trend and one I believe that the LTA should look into.

But if I have my way, I would abolish road tax altogether and replace it with a higher fuel tax. Now, before you readers rush to flame me in the comments section, hear me out! While a pollution based tax is in the right direction, it is still too blunt an instrument. That is because the buying and ownership of a highly polluting or a big displacement car will not in itself create pollution. We pollute and consume scarce fuel only when we drive! Now, if you drive more, you create more pollution, you pay more! Isn't that even fairer than simply taxing based on pollution? After all, if I own a Range Rover Sport but only drive it 1km to the market on Sundays, surely I pollute less than the person who travels >100km in his Toyota Altis daily? So, shouldn't he be taxed more?

Of course, I must admit that my system is not without its flaws. For one, it is possible that in some cases, an extremely polluting car, driven a short distance can still outweigh the pollution caused by a year's driving for an extremely green car. Well, I believe that these are the outliers and are likely to be very very rare and that my system will be fairer to the majority of Singapore drivers than what we currently have. What say you?