Some motor traders, academics suggest merging COE car categories; others propose targeted refinements

SINGAPORE - Some motor traders and academics have suggested merging Categories A and B of the certificate of entitlement (COE) system to keep it relevant, while others prefer retaining them as they are, with more targeted refinements.

Observers interviewed by The Straits Times broadly agreed that the COE system needs a review. They pointed out that the current iteration lags behind market developments, including the rising dominance of electric vehicles (EVs).

Some proposed using the cost of a car at the point of import into Singapore – its open market value (OMV) – to determine whether it is a mass-market or higher-end model. One suggested adding the buyer’s residence type to the mix to better protect the interests of more budget-conscious consumers from those shopping for more premium options.

Acting Transport Minister Jeffrey Siow, during the debate on his ministry’s budget on March 4, announced a review of the COE system to improve the categorisation of cars. Slated to be completed by the end of 2026, the review will see the Land Transport Authority (LTA) gathering views from the motor industry, academics and motorists.

Mr Siow believes there is merit to maintaining a distinction between mass-market and higher-end cars, and said the review will have to determine a form of categorisation that is a “little bit more stable in the longer term”.

It follows calls by MPs who flagged the anomaly in February’s second COE exercise, where the Category A premium for mass-market cars exceeded that of Category B, meant for higher-end cars.

On Feb 20, the Category A premium was $106,501. This was $1,500 higher than that of Category B, which closed at $105,001.

Some MPs noted that this ran counter to the original intent of having two car COE categories, reserving a portion of the vehicle quota in Category A for mass-market buyers to ensure affordability.

Mr Edward Chia (Holland-Bukit Timah GRC) proposed that instead of separating mass-market cars from premium ones through COE categorisation, bidders draw from a single pool of certificates.

The final cost car buyers pay for a certificate will depend on the vehicle’s cost or OMV – higher-value cars would incur a surcharge, while budget-friendly models would receive a discount, effectively separating mass-market models from higher-end cars.

At present, EVs use the same COE categories as cars with internal combustion engines (ICEs). To qualify for the Category A bracket, the engine of an ICE car cannot be bigger than 1,600cc and its power output cannot exceed 130bhp. For EVs, the electric motor’s output cannot exceed 110kW.

Mr Chia and Mr Ang Wei Neng (West Coast-Jurong West GRC) noted in Parliament that carmakers have been able to adjust the power output of both ICE and EV models to fit within the Category A threshold. This has led to stronger demand for such certificates, consequently raising prices to a point that is closer to that of Category B certificates.

Academics and industry experts said using power output to separate mass-market from premium models is a blunt tool that does not accurately capture the difference between the two vehicle categories and ignores automotive technology trends.

Mr Ng Choon Wee, commercial director of Komoco Motors, said the implementation of innovations like turbocharging and hybridisation, which have resulted in better fuel consumption and lower emissions, has pushed up the power output.

In some cases, mass-market cars, which intuitively should be in Category A, get bumped up to Category B because of higher power output.

Mr Ng, therefore, supports merging Category A and B COEs, going further to suggest that COEs in the Open category (Category E) be absorbed into the same pool to make the system more reflective of market conditions.

Open category COEs can be used to register any vehicle type other than motorcycles, but are almost always used for larger, more powerful cars. Motor dealers hold on to such transferable certificates to register cars immediately when they find a buyer, rather than bid for a COE at the next tender exercise.

Mr Ng said using such COEs in this way distorts the market, as dealers are bidding ahead of demand for certificates.

On Mr Chia’s suggestion to impose surcharges or give discounts on COE price based on a car’s cost, Mr Ng said secondary factors like the buyer’s type of residence can be considered to prevent discounts from being given to someone who may be able to afford a more upmarket model.

Also in support of merging the car COE categories is Mr Ernest Tan, deputy chief executive of Vincar.

The motor dealer said that, besides the current system not reflecting the market situation, existing car-related policies – specifically the tiered additional registration fee (ARF), Singapore’s main vehicle tax – already effectively separate mass-market cars from more premium ones based on their cost.

Under the tiered ARF scheme, cars with higher OMVs are taxed more heavily than models with lower OMVs.

Conversely, Mr James Ng, who heads BYD’s business in Singapore and the Philippines, warned that a unified COE pool can backfire.

He cautioned that removing the Category A separation could leave budget-conscious buyers vulnerable to being outbid by those with deeper pockets buying higher-end models.

Rather than a total reset, he suggested strengthening the distinction between the two car COE categories, such as including the car’s OMV as an additional criterion for Category A COEs.

Another supporter of keeping the categories separate but refining them is Associate Professor (Practice) Victor Kwan from the Singapore University of Social Sciences.

Prof Kwan, who used to be in the motor trade, said using a car’s OMV is a good, albeit imperfect, way to differentiate between mass-market and premium cars.

This is because motor dealers can tweak the OMV such that it slips below the set cut-off value for Category A, thus potentially gaining a pricing advantage by being in the mass-market category.

The car model’s OMV also fluctuates from batch to batch, due to changes in the foreign exchange rate, so a model’s COE categorisation may change from month to month.

Among those preferring a complete overhaul of the COE system is Mr Nicholas Wong.

The chief executive of Honda agent Kah Motor believes that the new system should incorporate a list of comprehensive criteria to qualify a car for Category A, rather than just “one or two” factors. These thresholds would need to be reviewed periodically to reflect longer-term trends.

MP Foo Cexiang (Tanjong Pagar GRC), who was a director at the Ministry of Transport before entering politics in 2025, said it is useful to consider developments such as the ongoing roll-out of the next-generation Electronic Road Pricing system, which improves traffic management and thus effectively raises road capacity without taking up more land.

This will make it possible for LTA to consider allowing more vehicles on the road, increasing the supply of COEs and reversing the zero vehicle population growth policy that has been in place since February 2018, he added.

A spokesperson for BMW Group Asia said any tweaks to the COE system should be forward-looking and reflect the technological progress of cars.

The spokesperson said that while it is too early to decide between combining the COE categories or keeping them separate, any refreshed system should create a “fair, level playing field” for all car manufacturers.