Tax exemptions for green commercial vehicles: Optimus and Prime?

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In the second part of our green vehicle series (read our first one here), HT spoke to the Environmental Protection Department (EPD) and industry insiders for an inside track on the controversies regarding the EPD’s tax incentive scheme for environment-friendly commercial vehicles. The vehicles at hand, include taxis, minibuses, non-franchise buses, vans, and goods vehicles, such as delivery vans and lorries.

Money well spent?
While private cars take up the majority of licensed vehicles (70.6% as of August 2014), diesel commercial vehicles disproportionately emit most of the major pollutants that cause roadside pollution. In 2008, the government began an “environment-friendly vehicle scheme”, offering reductions in first registration tax for buyers who purchase “green” commercial vehicles.

The qualifying standard is updated every year and has become more and more stringent. Since its establishment in 2008, a total of 23,505 individual vehicle applications have been approved, leading to 724 million of first registration tax dollars being forgone by the government in the form of incentives.

Tree-climbing fish
A particular point of contention lies with the way vehicles are being tested. For vehicles weighing 3.5 tonnes or less, the entire vehicle is tested on a chassis dynamometer, basically a giant treadmill, while for those weighing more only the engine is taken out for tests.

The problem with this is that fuel economy is not taken into account for heavier duty vehicles. Fuel economy refers to the efficiency in which the fuel is burned to supply energy to the vehicle. Fuel economy is taken into account when smaller vehicles are tested on a chassis dynamometer.

But since, in heavier vehicles only the engine is tested, fuel economy is ignored. In theory, a vehicle that has just missed the emission standards (according to lab tests) might have better fuel economy, meaning less fuel is burned for the same distance. Accordingly, it could still emit less pollutants on the road than one that has met the standard.

He says, he says
Given the inability of standards to take into account the effect of fuel economy, industry players have instead asked the EPD to adopt the more stringent Euro VI standard as the threshold for tax concessions.

The EPD is aware of these voices and provided a rebuttal to those claims, attributing the delay of adoption to a lack of supply of Euro VI vehicles. Our source has argued, since Euro VI is currently mandated in Europe, all vehicles that are being sold there already meet the standard, so the supply exists and would be available if the government could create the supply by incentivising the more expensive vehicles.

Starting around November, industry consultations will begin to update the standards next year. The EPD has not ruled out the adoption of Euro VI as the next reference for the scheme.

Stay tuned for our next part of the series: Private cars and green policy.

To read more detailed analyses, in-depth numbers, and interviews with the EPD’s assistant director Mr Mok Wai Chuen and industry insiders, be sure to subscribe to our next digital version.