It consults world body on practices brands use to keep prices - and tax - low
By Christopher Tan 24 July 2011
The Government may be clamping down on pricing tactics that have made some cars cheaper but the taxman poorer.
The Sunday Times understands that Singapore Customs is consulting the World Customs Organisation (WCO) on the practices, which some car distributors have also slammed as unfair.
The trouble arises as a result of the way new cars are taxed and priced here.
In Singapore, the sticker price that customers pay when they buy a new car is made up of two broad components.
The first is the car’s ‘open market value’ (OMV). The second is a slew of vehicle taxes - namely ARF (additional registration fee), excise duty and goods and services tax (GST) - which are a percentage of the OMV. The lower a car’s OMV, therefore, the less taxes it attracts.
And this means a lower final sticker price in the showroom, which makes the car more saleable in the competitive Singapore market.
Now, most cars here are sold to customers by local distributors who import the vehicles from car manufacturers.
For some brands, the car companies have assumed the role of middleman, and in one case, the role of retailer - selling the vehicles to the customers directly.
Because they also manufacture the cars, these brands can make their vehicles more competitive by declaring lower OMVs for them - even technically making a loss on the cost of the cars. This is because the cars will in turn attract lower taxes and will be priced much cheaper than they ought to be.
The consumer, of course, benefits from lower prices, but some motor traders are not so sure this sort of power to undercut prices is above board.
‘There is no level playing field now,’ said a senior executive of a listed motor group. ‘I am glad the authorities are looking into it.
‘What’s more, the Government is potentially losing tens of millions in tax revenue a year.’
How do these car companies recover the losses made on the underpriced cars?
Well, at least two of them eventually pay back to their home offices a ‘licensing’ or ‘franchise’ fee, which amounts to millions of dollars a year. But even with the payment of such a fee, the prices are cheap enough to make an impact with consumers.
This type of fee arrangement seems legitimate, going by the current rules. At least one big accounting firm has even been marketing this concept openly to car companies here as a way of lowering their OMVs.
But now, it looks like Singapore Customs is looking into the practice. It has asked the WCO’s technical committee for its interpretation of the practice.
It cited the case of two unnamed companies which are related to each other, pointing out that one company was created by the other for the sole purpose of importing its vehicles and selling them.
When contacted, Singapore Customs would not comment on its move, while the WCO was unreachable.
Volkswagen Group Singapore managing director Zeno Kerschbaumer has defended the practice, saying that it is common for ‘global brand activities to be supported by national sales companies (NSCs)’. NSCs refer to manufacturer-owned or controlled companies that import or distribute cars in a certain market.
Volkswagen Group Singapore is an NSC.
Dr Kerschbaumer pointed out, however, that agreements between a manufacturer and its NSC ‘are country-specific’.
Other industry experts like Mr. Cecil Leong, chief executive of Customs consulting firm Bryan Cave International Consulting Asia Pacific, noted that these franchise fees are uncommon in the car industry.
‘If you are in the fast-food business, sure. But in the motor trade, it’s unheard of,’ Mr. Leong said.
Singapore Customs has cracked down on more than a dozen parallel importers in recent years who have evaded car taxes. Several have been fined heftily, jailed, or both.
But other than the industry-wide crackdown in the 1990s, no big authorised agent has been taken to task in recent years.
The Motor Traders Association has petitioned the Government to re-examine the way car taxes are applied. One suggestion is for taxes to be based on the final retail price, as is the case in Hong Kong - a format it claims is fairer for all.
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Customs looks at car pricing tactics
It consults world body on practices brands use to keep prices - and tax - low
By Christopher Tan
24 July 2011
The Government may be clamping down on pricing tactics that have made some cars cheaper but the taxman poorer.
The Sunday Times understands that Singapore Customs is consulting the World Customs Organisation (WCO) on the practices, which some car distributors have also slammed as unfair.
The trouble arises as a result of the way new cars are taxed and priced here.
In Singapore, the sticker price that customers pay when they buy a new car is made up of two broad components.
The first is the car’s ‘open market value’ (OMV). The second is a slew of vehicle taxes - namely ARF (additional registration fee), excise duty and goods and services tax (GST) - which are a percentage of the OMV. The lower a car’s OMV, therefore, the less taxes it attracts.
And this means a lower final sticker price in the showroom, which makes the car more saleable in the competitive Singapore market.
Now, most cars here are sold to customers by local distributors who import the vehicles from car manufacturers.
For some brands, the car companies have assumed the role of middleman, and in one case, the role of retailer - selling the vehicles to the customers directly.
Because they also manufacture the cars, these brands can make their vehicles more competitive by declaring lower OMVs for them - even technically making a loss on the cost of the cars. This is because the cars will in turn attract lower taxes and will be priced much cheaper than they ought to be.
The consumer, of course, benefits from lower prices, but some motor traders are not so sure this sort of power to undercut prices is above board.
‘There is no level playing field now,’ said a senior executive of a listed motor group. ‘I am glad the authorities are looking into it.
‘What’s more, the Government is potentially losing tens of millions in tax revenue a year.’
How do these car companies recover the losses made on the underpriced cars?
Well, at least two of them eventually pay back to their home offices a ‘licensing’ or ‘franchise’ fee, which amounts to millions of dollars a year. But even with the payment of such a fee, the prices are cheap enough to make an impact with consumers.
This type of fee arrangement seems legitimate, going by the current rules. At least one big accounting firm has even been marketing this concept openly to car companies here as a way of lowering their OMVs.
But now, it looks like Singapore Customs is looking into the practice. It has asked the WCO’s technical committee for its interpretation of the practice.
It cited the case of two unnamed companies which are related to each other, pointing out that one company was created by the other for the sole purpose of importing its vehicles and selling them.
When contacted, Singapore Customs would not comment on its move, while the WCO was unreachable.
Volkswagen Group Singapore managing director Zeno Kerschbaumer has defended the practice, saying that it is common for ‘global brand activities to be supported by national sales companies (NSCs)’. NSCs refer to manufacturer-owned or controlled companies that import or distribute cars in a certain market.
Volkswagen Group Singapore is an NSC.
Dr Kerschbaumer pointed out, however, that agreements between a manufacturer and its NSC ‘are country-specific’.
Other industry experts like Mr. Cecil Leong, chief executive of Customs consulting firm Bryan Cave International Consulting Asia Pacific, noted that these franchise fees are uncommon in the car industry.
‘If you are in the fast-food business, sure. But in the motor trade, it’s unheard of,’ Mr. Leong said.
Singapore Customs has cracked down on more than a dozen parallel importers in recent years who have evaded car taxes. Several have been fined heftily, jailed, or both.
But other than the industry-wide crackdown in the 1990s, no big authorised agent has been taken to task in recent years.
The Motor Traders Association has petitioned the Government to re-examine the way car taxes are applied. One suggestion is for taxes to be based on the final retail price, as is the case in Hong Kong - a format it claims is fairer for all.
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