Singapore proposes merging COE categories with value-based rebate system

Singapore's transport regulator has put forward a plan to reshape how the country's certificate of entitlement system works, proposing to collapse two separate car categories into one and layer on top of it a sliding scale of rebates and surcharges tied to what a vehicle actually costs. The Land Transport Authority released the proposal on October 8 for public comment, marking the first major rethink of the COE framework in years.

The problem the LTA is trying to solve is straightforward enough: the gap between Category A and Category B premiums has been shrinking. Category A is meant for mass-market cars, defined by engine size and power output. Category B covers larger, more powerful vehicles and luxury models. But manufacturers have learned to game the system. They adjust the specifications of higher-end cars—reducing engine power, for instance—to squeeze them into the Category A threshold, where the COE premium has historically been lower. The result is that since late 2024, the two categories have been trading places. In February through June 2026, Category A premiums actually exceeded Category B three times. By early October, the difference had narrowed to just $99, with Category A closing at $130,001 and Category B at $130,100.

The LTA's response is to merge the two categories and introduce what it calls a "feebate" system—a term combining fee and rebate. Under this approach, all cars would bid in a single pool, but the actual COE cost would be adjusted up or down depending on the car's open market value, or OMV, which is the price before taxes are applied. The authority has sketched out two options. The simpler version uses three bands: cars in the lowest band would receive a $15,000 rebate, those in the middle band would pay the standard COE price with no adjustment, and cars in the highest band would pay a $15,000 surcharge. A more granular five-band option would use $7,500 increments, allowing finer distinctions between vehicle values.

The LTA plans to use median OMV figures from historical data to sort car models into bands, or for new models, the specific OMV at the time of introduction. These assignments would be reviewed annually to keep pace with market changes and new vehicle launches. Based on 2025 registration data, the authority estimates that roughly half of all cars would either receive a rebate or face no surcharge, while the other half would pay more. Examples of cars that would qualify for rebates include the BYD E6, Honda Freed, and Toyota Sienta. Models like the BMW iX2, Honda Civic Type R, Tesla Model Y RWD, and Toyota Alphard would incur surcharges.

One significant question remains unresolved: whether the rebate-surcharge system should apply when owners renew their COEs after the initial ten-year validity period expires. The LTA has flagged this as a consultation point, noting that renewal costs are calculated differently and that Category A and B prices have converged in recent years, which might make the adjustment less necessary for renewals. However, the authority acknowledged that shifting to a single category could affect existing owners differently and said it would consider transitional arrangements for those seeking to renew.

The LTA is also soliciting feedback on Category E, the open category that can be used for any vehicle type except motorcycles. Because bidders often use Category E COEs to register vehicles in whichever category has the highest premium—typically Category B in recent years—the authority is considering either eliminating the category entirely or restricting it to cars only, excluding motorcycles and commercial vehicles.

During focus groups and dialogue sessions held between April and May, the LTA consulted with more than 200 people, including academics and industry representatives. The authority has also explained why it rejected various other proposals that emerged during those sessions, including allocating COEs based on family needs, adopting a pay-as-you-bid system, creating a separate category for private-hire vehicles, and imposing surcharges on owners of multiple cars. On the family-needs idea, the LTA noted the administrative difficulty of determining whose circumstances should receive priority and the challenge of managing such a system fairly over the lifespan of a COE as household situations change.

Transport observers have cautioned against assuming the changes will necessarily lower overall COE prices. MP Edward Chia, who had proposed a similar idea in Parliament in March, noted that clearing prices will continue to depend on market demand, available supply, and buyers' willingness and ability to pay. Samuel Chng, head of the Urban Psychology Lab at the Lee Kuan Yew Centre for Innovative Cities, pointed out that the proposed system would create a $30,000 spread between the largest rebate and the largest surcharge, a meaningful financial gap. The LTA has emphasized that the objective is not to influence overall COE prices but to maintain a meaningful difference between what mass-market and luxury car buyers pay, even when bidding in the same category. The public consultation period closes on November 2, with the full review expected to be completed by the first half of 2027.