New tax break of electric cars gets less-than-electric response

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Hong Kong will give new tax breaks of up to HK$250,000 for car owners who switch to an electric vehicle.

The Special Administrative Region’s government unveiled the benefit during its latest budget at the end of February as a “one-for-one replacement” plan. The aim of the benefit is to convince more private car owners to go green and switch to electric.

The new car replacement plan will remain effective until Mar. 31, 2021. The old cars must be scrapped and de-registered before the waiver can be applied. The policy is designed to keep owners from having more private cars.

The move, while generally welcome, added a fair bit of confusion to the government’s policy outlook on electric cars.

Just last year, finance chief Paul Chan Mo-Po allowed for a tax break of just HK$97,500 but prior to that, the government had completely waived the first registration tax on electric cars. The first registration tax is roughly equal to the value of the car, which could add up to several hundred thousand dollars in the case of a luxury Tesla.

The government said it cut the benefit in 2017 to limit the number of private cars, including electric ones, in the city’s congested roads.

Rather than limit the number of car purchases, the reduction of the waiver simply pushed more people towards purchases of petrol-powered cars, aggravating roadside air pollution.

“The measure back in 2017 resulted in (sales of) electric cars dropping by 97 percent and gas-powered cars growing by 9 percent,” Lyton Kam, administrator of electric car owner group Tesla Hong Kong Club, told Harbour Times. “Is the policy actually promoting a green environment or worsening the pollution by freezing the electric car market?”

This time, the tax concession of up to $250,000 comes with three conditions. The first is that an old private car must have been first registered for at least six years. Second, the car owner must have been the registered owner of the old car for at least three years. Finally, the old private car must have been licensed for at least 20 of the 24 months immediately prior to its de-registration.

Buyers of electric cars who do not meet the new requirements can still tap the 2017 HK$97,500 waive on the first registration tax until 31 March 2021.

The two waivers can be combined. This means that the first registration tax could potentially be fully waived on electric cars valued at HK$377,500 or below, such as BMW I3 and Tesla’s Model 3.

The aim of the plan is not to subsidize buyers of luxury cars but to promote the use of electric cars.

Kam described the car replacement plan as “a drop of water in the desert” and doubted many petrol-power car owners would be eligible for the new plan or willing to give up their cars to actually take advantage of the incentive which, he suggested, is not big enough due to inadequate support for electric cars.

Still, the new car replacement plan was generally well received.

“The scheme is a good move, but is not significant enough to promote green energy,” Kam said. “Suppressing the number of gas-powered cars is not effective enough in tackling traffic congestion and air pollution. The lack of long-term road planning and the far-from-enough installation of (electric car) chargers are also key issues.”

By the end of December 2017 there were just 1,846 chargers available for public use for around 11,000 registered electric cars in Hong Kong – just 1.4 percent of the 766,000 vehicles on Hong Kong roads.

“Tax incentives alone are not enough to promote a green driving habit. There needs to be better road planning and more charging facilities for electric cars at residential and public carparks to accommodate the growth of electric cars,” Kam said.

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