The reduction in rebates for scrapping cars before 10 years could lead to higher sales of electric vehicles (EVs), given the relatively lower impact on their depreciation value compared with internal combustion engine (ICE) cars, analysts have said.

It may also lead to a short-term increase in activity in the second-hand market.

Prime Minister Lawrence Wong announced in his Budget 2026 speech that the Preferential Additional Registration Fee (PARF), granted when a car is deregistered before 10 years, would be reduced by 45 percentage points.

The cap would also be lowered from SGD 60,000 (US$ 47,400) to SGD 30,000. The new rates will take effect from the next Certificate of Entitlement (COE) exercise, beginning on February 16th.

Analysts stated that the move would accelerate the depreciation of all new cars, although ICE cars are expected to experience a faster decline in value than EVs. This is because EVs receive rebates of up to SGD 30,000 under the Vehicular Emissions Scheme (VES) and the Electric Vehicle Early Adoption Incentive (EEAI). These rebates are applied upfront at the point of sale.

How PARF works

Drivers are required to pay an Additional Registration Fee (ARF) when purchasing a new car. This fee is based on the vehicle's Open Market Value (OMV). When a car is scrapped before the 10-year mark, owners receive a PARF rebate calculated as a percentage of the ARF.

For EVs, rebates of up to SGD 30,000 are deducted from the ARF. As a result, the payable ARF for an EV is lower than that of an ICE car, which also means that the PARF rebate for an EV is smaller. However, the total rebates available for an EV are higher than those for an ICE car because EVs receive rebates upfront.

For example, if an EV and an ICE car both have an ARF of SGD 36,000, the EV's payable ARF would be reduced to SGD 6,000 if it qualifies for the full SGD 30,000 in VES and EEAI rebates. The ICE car's payable ARF would remain at SGD 36,000.

If an EV is scrapped before five years, the PARF rebate, calculated at the current rate of 75% of the ARF, would amount to SGD 4,500. Together with the upfront SGD 30,000 rebate, the total rebate would be SGD 34,500. An ICE car scrapped before five years would receive a PARF rebate of SGD 27,000.

Under the new PARF rate of 30%, the same EV would receive SGD 1,800 when scrapped. Including the SGD 30,000 upfront rebate, the total would amount to SGD 31,800. The ICE car would receive SGD 10,800.

"EV owners won't feel the same pinch, but the ICE owners will feel that pinch," said Associate Professor Raymond Ong, a transport infrastructure researcher at the National University of Singapore.

Chinese EVs

The revised PARF rates will also affect EVs differently depending on their price levels.

Associate Professor Walter Theseira of the Singapore University of Social Sciences stated that the measure is likely to benefit Chinese EV brands more than American or continental marques, as Chinese EVs generally have lower OMVs.

According to data from OneMotoring, in January, BYD's 11 models had a median OMV of SGD 28,359.

By comparison, the median OMV stood at SGD 49,433 for Tesla's five models, SGD 48,539 for Volvo's five EV models, and SGD 43,263 for Audi's four EV models.

A lower OMV results in a lower ARF. After accounting for upfront rebates under the VES and EEAI, many Chinese EVs have a lower payable ARF.

"Most Chinese EVs have an ARF that is very close to the rebate limit and so they have hardly any PARF to speak of," said Associate Professor Theseira, a transport economist.

For instance, a BYD model with an OMV of SGD 28,359 would incur an ARF of SGD 31,703. After applying SGD 30,000 in rebates, the payable ARF would be SGD 1,703. In contrast, a median Tesla model with an OMV of SGD 49,433 would incur an ARF of SGD 65,923. After the same SGD 30,000 in rebates, the owner would still pay SGD 35,923 in ARF.

As the PARF rebate is calculated as a percentage of the ARF, any reduction in the PARF rate has a larger absolute impact on higher-OMV vehicles.

Under the same scenario, a BYD scrapped before five years would receive SGD 1,277.25 at the current PARF rate. Under the revised rate, this would fall to SGD 510.90, a difference of SGD 766.35. A Tesla scrapped before five years would receive SGD 26,942.25 at the current rate. Under the revised rate, this would decrease to SGD 10,776.90, a difference of SGD 16,165.35.

In absolute terms, the loss in rebate value is greater for higher-OMV models.

"The OMV of continental and American EVs tends to be higher than that of Chinese-branded EVs, so they would be more affected," Associate Professor Theseira stated.

Impact on second-hand market

The second-hand car market may experience increased activity due to the revised tax structure, according to Mr Benjamin Loo, Chief Operating Officer of CarTimes Group.

He stated that existing vehicles would face lower depreciation compared with vehicles registered after the new rules take effect, as the latter would be subject to reduced PARF rebates.

"Immediately after the news was announced, we received increased enquiries regarding our second-hand vehicles that are less than two years old," Mr Loo said.

He added that CarTimes had recorded a 20% increase in enquiries for such vehicles.

Associate Professor Theseira stated that consumers who are focused on price or depreciation may consider used cars, as they generally experience lower depreciation. This could lead to a short-term increase in activity in the second-hand market.

He further stated that in four to five years, the second-hand market may show vehicles purchased before February 16th and those purchased after that date being offered concurrently.

"In the same market, there will be cars of the same model, separated by only one or two months in age, but carrying different paper values," he said.

Cost of owning car

Questions remain as to whether the changes will increase the overall cost of car ownership, particularly as incentives to encourage EV adoption are reduced.

The Electric Vehicle Early Adoption Incentive rebate, capped at SGD 7,500, will cease from January 1st, 2027.

If COE prices remain constant, the cost of new car ownership would rise, as owners scrapping their vehicles before 10 years would receive lower PARF rebates than previously. However, industry observers state that it remains uncertain whether COE prices will increase or moderate in response to the PARF revisions.

Distinguished Professor Ivan Png of the National University of Singapore stated that COE prices could moderate.

"Buyers of ICE cars expect lower rebates if they scrap their cars before 10 years. Their car purchases will become more expensive, increasing the total cost of ownership," he said.

"They would adjust by bidding less for COEs."

Conversely, the changes to PARF may also reduce the likelihood of future car owners scrapping their vehicles before the 10-year mark, according to Mr Raymond Tang, Managing Director of Yong Lee Seng Motor.