When the USA sneezes the whole world catches a cold. When the USA makes the rule, the whole world will have no choice but adopt the same. That is a fact of life with the world's biggest economy and consumer. But that is not a bad thing if the USA leads the world for the betterment of this small planet we call earth. With the oil price hovering in the $100 mark, it now makes more sense for the auto makers to produce a more fuel efficient cars. In the USA, a new era of more miles per litre and cleaner vehicles with low CO2 emission is now an in thing. Regulations have been introduced to encourage the production of a more fuel effecient and environmentally friendly vehicles. Toyata leads the way and we are now seeing new models coming out. Several countries have now followed suit and have started offering tax incentives, which vary from tax exemptions for road taxes to lower or even no taxes beyond value added taxes (VAT) on new cars, for vehicles with lower carbon dioxide (CO2) emissions in order to support the sale of environmentally friendly, low emission vehicles that use less fuel.
Brunei too has recently announced some changes in the import tax of vehicles by imposing a higher tax on the bigger engines. Obviously we need to avoid wastage and conserve our domestic fuel consumption. Unfortunately greener vehicles or hybrids are still more expensive than the currently available cars. Some hybrid cars use high-tech batteries that are still very expensive when you need to replace them.
So, what kind of incentives should be given in order to support the purchase of such vehicles in Brunei? Before answering this question, it is useful to analyze the tax system in Western European countries, where a variety of incentives aimed to increase the number of greener cars have already been in place.
Tax incentives: the Netherlands
The Netherlands is a good example of a tax system adapted to greener vehicles. Holland does not charge any tax except the VAT, called BTW in Dutch, on new cars that have a low CO2 emission. For gasoline-powered cars, the CO2 emission is a maximum of 110 grams per kilometer, while diesel-powered cars should have a CO2 emission of below 95 grams per kilometer. In this way, the price of a new car in the Netherlands is reduced by the special consumption tax, called the BPM in the Netherlands, which is approximately 20 percent. This state support is also valid for hybrid and electric cars. Moreover, as in many European countries, the vehicle owner also has to pay a road tax for using public roads.
The country's road tax system depends on the weight of the car and the type of fuel it uses. For instance, the annual road tax for a diesel-driven sport utility vehicle (SUV) of 2,070 kilograms is 2,296 euros whereas the tax is just 1,284 euros when the same SUV has a gasoline engine. The tax for a standard family car weighing 1,160 kilograms is 1,108 euros annually for a diesel car and 528 euros for the gasoline version. They have adopted this system because diesel engines have much higher NOx, a generic term for mono-nitrogen oxides, emissions than gasoline engines. In other words, the Dutch government believes that diesel engines pollute the environment more than gasoline-powered engines. As in the case of BPM exemption, green cars have also exempt from the country's road tax since Jan 1, 2010. In this way, the state wants to reduce CO2 emissions by supporting the purchase of green vehicles.
Besides the state, the private sector offers various promotions for green vehicles. For instance, the country has "green insurance" for low emission cars. The annual premium for full-coverage insurance is lower for green cars compared to those with higher CO2 emissions.
The sales of environmentally friendly cars reached 320,000 units in the first six months of 2010, according to data from various car associations in the Netherlands. Considering that the total vehicle sales in the country neared 483,000 in 2010, most of the new cars had low or zero CO2 emissions. It seems that the current tax system in the Netherlands has stimulated the sales of the "muesli cars," as they are called there.
Tax incentives: the UK
The UK has also adopted a road-tax system for CO2 emission. Their Vehicle Excise Duty (VED) is based on 13 CO2 bands (A to M). VED band A applies to all cars with CO2 emissions of up to 100 grams per kilometer, while bands B to L apply to CO2 emissions of 100 to 255 grams per kilometer, with each band covering a range of 10-30 grams per kilometer. The highest band, M, applies to cars with emissions of over 255 grams per kilometer. As of April 2010, a new "first year" rate a higher annual road-tax rate applies to new cars during the first year of ownership in the UK. Green cars with CO2 emissions of 130 grams per kilometer or less -VED bands A to D are exempt from road tax in the first year. Band A cars with CO2 emission up to 100 grams per kilometer do not have to pay road tax at all.
Moreover, the showroom tax, a first-year excise duty on new vehicles, is designed to encourage people to choose lower-emission models and penalize those opting for higher levels of CO2. For instance, a consumer who would like to buy a SUV with a CO2 emission of over 255 grams per kilometer band needs to pay a showroom tax of 950 pounds, while cars with a CO2 emission up to 130 grams per kilometer bands A to D are exempt.
There are also green car insurance companies in the UK, offering plans that claim to be environmentally friendly. The providers of this tailor-made insurance offer plans for "carbon offsetting," which addresses how much CO2 a vehicle will emit over the course of one year. It takes into account factors such as fuel type, annual mileage and engine size. At the end, the insurance company prepares a premium based on the idea that "the more your vehicle pollutes, the more you need to pay."
Low emission vehicles like hybrid or electric cars still occupy a very small market in Brunei. But there is slowly growing awareness for environmentally friendly cars. HSBC Brunei for example provides their senior management with Toyota Prius as their company cars as part of their global effort to reduce their carbon footprint. More companies should adopt this commendable initiative.
But in order to encourage more companies to adopt this we must have a system in place that provides incentives for buying these cars. Without such incentives their sales will remain low in Brunei. For example, unleaded and leaded petrol are still being sold at the same price. We know lead has a harmful effect to our environment as well as to our health.
Banks or hire purchase companies should be encouraged to give favorable interest rates on car loans for greener cars. One possible way is to make "green profits" as tax deductable, which means revenues derived from greener initiatives should attract lower annual corporate tax. Insurance companies could also be involved by offering cheaper insurance premiums for greener vehicles.
To ensure our energy reserve last longer and can be shared with our future children or the next generation to come, we need to be more efficient in using our oil resources. Our wastage habits should also go. Car pooling should be encouraged during rush hours. Congestions charges should be imposed like that in the city of London or Singapore in the CBD areas. It is also crucial to drastically reduce CO2 emissions in order to keep our environment clean. The car is seen as one of the major polluters, so in reducing the CO2 emissions of vehicles, it is still possible to prevent environmental pollution while driving. It is our duty to ensure that Brunei will remain forever green and beautiful. Afterall we do not own this country but we borrow her from our children.
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