The excise duty on diesel will be raised from 10 cents to 20 cents a litre with immediate effect.
At the same time, the annual Special Tax for diesel-powered cars and taxis will be reduced further by $100 and $850, respectively, from Feb 18. They were reduced by the same quantums two years ago.
With the change, an owner of a Euro 5 1.6-litre diesel car who pays an annual Special Tax of $540 will now pay $440 a year. And a fleet owner of a diesel taxi who currently pays $4,250 a year will now pay $3,400.
However, these may not fully offset the excise duty at the pumps.
Announcing the move yesterday, Finance Minister Heng Swee Keat said: "Diesel exhaust is highly pollutive, and adversely affects our people's health and quality of life. Many cities in Europe have announced restrictions on diesel vehicle usage. We have also taken steps to discourage diesel consumption."
Owners of private diesel buses and goods vehicles will be granted new road tax rebates for a three-year period from Aug 1 this year to July 31, 2022.
A 100 per cent road tax rebate will be granted in the first year, followed by 75 per cent in the second year and 50 per cent in the third year.
The new road tax rebate of 100 per cent will apply for the period from Aug 1 this year to July 31, 2020.
Diesel school buses and eligible diesel private-hire or excursion buses that ferry schoolchildren will receive additional cash rebates for the same three-year period.
Over three years, Mr Heng said these buses will receive as much as $3,200 in cash rebates.
ComfortDelGro Corp, which has one of the largest diesel fleets here, said it will be passing on the entire savings resulting from the reduction in the annual Special Tax for diesel taxis to its drivers. The savings will help offset a foreseeable increase in running cost.
Taxi drivers and private-hire drivers who use diesel vehicles will incur around $1,000 more a year if their driving patterns do not change.
This is based on an average daily mileage of 300km and a fuel efficiency of 10km a litre.
A private bus operator will incur around $2,000 more per full-sized bus a year, based on an average mileage of 140km a day and a fuel efficiency of 2.5km a litre.
At 20 cents a litre, the duty on diesel is still less than half that for petrol.
Correction note: An earlier version of the story said the annual Special Tax for diesel cars and taxis will be reduced from Feb 20. This is incorrect. The date should be Feb 18. We are sorry for the error.