Building more roads and maximising road capacity alone will not be able to ensure smooth flowing roads. Therefore, we need to adopt a vehicle ownership policy which could keep the car population at levels supportable by road infrastructure development as well as planned developments in public transport and traffic management system.

Singapore has instituted the Vehicle Quota System (VQS) since May 1990 which has been effective in controlling the growth of vehicle population at a sustainable rate. The VQS sets a quota to the number of new vehicles to be registered in Singapore each year. This quota is calculated based on the allowable growth rate in vehicle population that is sustainable for the long term.

Under the VQS, anyone who wants to register a new vehicle would need to first bid for a Certificate of Entitlement (COE), which entitles him to own and use the vehicle for 10 years. COEs are allocated through the market mechanism, which provides the most efficient and equitable means of allocation. The quota is released twice a month and bidding for the COEs is done through an electronic on-line auction system. The successful bid price for the COE thus reflects the market clearing price that people are willing to pay to own a car.

Lowering Vehicle Growth Rate

The VQS has been effective in managing the vehicle population, with total vehicle growth kept at a sustainable level (at a compounded annual growth rate of about 3% since its implementation) since it was first introduced. However, with the pace of roads expansion slowing down by half, the annual vehicle population growth rate has also been reduced by half from 3% to 1.5% p.a. since May 2009 for 3 years to ensure that it is sustainable. The total vehicle population growth rate will be reviewed after 3 years.

With the increasing traffic on our roads, there is a need for us to lower ownership costs and rely more on usage charges. Usage measures such as the Electronic Road Pricing (ERP) would encourage those with lower propensities to drive to switch to public transport. Whereas high vehicle ownership charges encourages people to drive more in order to extract maximum benefits from the high sunk costs.

Over the years, upfront vehicle taxes have been reduced as there is less need to rely on them to control the vehicle growth rate given the effectiveness of the ERP system. For example, since the introduction of the ERP system, the Additional Registration Fee (ARF) for cars has been progressively reduced from 150 per cent of the Open Market Value (OMV) of the vehicle to 100 per cent from March 2008. The road tax for vehicles has also been reduced by 15 per cent on 1 July 2008.

The reductions in ARF and road tax are estimated to cost the Government about $110m and $200m on an annual basis respectively. This is more than the $70m expected increment in revenue to be generated from the expanded ERP coverage in July 2008.