2017 FRT Renewal

[ck1116]

Recently chatted with some friends about EV's 0 FRT. (I consider them as expert analysts regarding government policy making.)

We all estimate next year EV will no longer enjoy 0 FRT, base on some reasons.

1. EV (mainly Model S), sold pretty well in 2015, about 5% of all new cars sold in HK, likely reaching 10% in 2016.
2. Tax lost about HK$ 2 billion in 2015, and will double at 2016. Total lost until 2017 March estimate about HK$ 10 billion.
3. HK government rarely wasted so much tax money on similar projects before. They totally underestimated EV sales, mainly Tesla.

EV's FRT will more likely same with hybrid cars after 2017-3; in fact, the CO2 emission for these 2 types of cars are very close at HK.

 

[jsiu]

EV's FRT will more likely same with hybrid cars after 2017-3; in fact, the CO2 emission for these 2 types of cars are very close at HK.

I am afraid I am not convinced by the last sentence of the above quoted message. To cut the story short, here are some weblinks giving the necessary details:

Electric cars still the greener option by far | Charged Hong Kong


RTHK Radio 3 Backchat 2016-04-18 | Charged Hong Kong

I have no idea about whether FRT exemption will be renewed but I would say that without the exemption of FRT, the promotion of EV in Hong Kong will just be ended

 

[markwj]

We all estimate next year EV will no longer enjoy 0 FRT, base on some reasons.

1. EV (mainly Model S), sold pretty well in 2015, about 5% of all new cars sold in HK, likely reaching 10% in 2016.
2. Tax lost about HK$ 2 billion in 2015, and will double at 2016. Total lost until 2017 March estimate about HK$ 10 billion.
3. HK government rarely wasted so much tax money on similar projects before. They totally underestimated EV sales, mainly Tesla.

EV's FRT will more likely same with hybrid cars after 2017-3; in fact, the CO2 emission for these 2 types of cars are very close at HK.

No, the CO2 emissions for pure EV vs hybrid are not very close in HK, and the gap is widening every year as the grid improves. CLP saw a 14% reduction in CO2 emissions from power generation last year, and all EVs powered by CLP improved the same amount - in just one year. You also need to take into account all the other emissions harmful to respiratory health. Any tax foregone pales in comparison to the costs that HK people are paying due to our terrible air quality: Hedley Environmental Index

Also, note that there is no FRT concession for hybrid cars. That ended about a year ago (1st April 2015):

Hong Kong Hybrid + Fuel Efficient FRT tax incentive to end!
http://www.info.gov.hk/gia/general/201502/24/P201502240631.htm

So what you are suggesting will happen is that all incentives for EVs will be dropped 1st April 2017, as they are for hybrids, and I just don't think that will/should happen. Government has had this 0% FRT incentive for EVs for more than 20 years now; what kind of message will it send to simply drop it to zero?

I think the government is well aware of two things:
a) Tax foregone is not real money in the bank, and is certainly not money lost. EVs are more expensive so if the EV was not chosen then a cheaper petrol car would have been chosen, and the tax paid less.
b) EVs will continue to be more expensive than comparable ICE vehicles for the coming few years; without incentives the growth we have seen will drop like a cliff.

Last time around (renewal in 2014), despite the nay-sayers, government had considerable support for the extension. It was passed by overwhelming majority.

The problem is public perception. Rich boys toys, and the growing lies and FUD being spread by the vested interests (oil, gas, ICE vehicle manufacturers). I can only imagine how much pressure Mercedes, Audi, and others, are putting on the government behind the scenes.

In my view, the incentives are there to _incentivise_ people to buy EVs. They should remain in place until the majority of cars on the road are EVs. One part of it is that EVs are more expensive than petrol cars, another the inconvenience and cost of charging, and the other part is a general incentive package. The idea is to make the purchase of an EV more attractive than that of a petrol car (even given the charging inconveniences for most).

 

[miimura]

If they want to incentivise people to buy more affordable EVs then they could devise a progressive exemption. For example 0% FRT on the first HKD$250k, 10% on the next HKD$100k, etc. They could also have a different tier for commercial vehicles in order to promote EV taxi, shuttle van, etc.

 

[Optic]

Please reinstate FRT progressively and use the tax money for charging infrastructure... FRT should deter driving in HK.

 

[wongsters]

Fair points Mark. The government would also look very bad if FRT exemption is taken away altogether just when EV is starting to open up to the mass market. Nothing but reinforcing the perception of benefitting the "rich boys".

 

[gubes]

If I had to take a wild guess, the HK government would not totally get rid of the FRT waiver but lower it. i.e they may apply a %age of what the FRT would have been for a similar vehicle in value. Plucking figures out the air....25-50% of the payable FRT.

 

[Lerxt]

It would not even be an issue if people who think they are important, would just keep out of it. The only reason why the government would increase it is if someone gave them the idea. How about everyone keep out of it.

 

[ck1116]

This FRT issue was discussed during gathering because we found that we all put down HK$ 10000 for Model 3. I actually reserved two at Hong Kong and 1 at China.

None of us think that Model 3 will still enjoy 0 FRT by the time we can start to decide order it or not. It won't be a HK$300k car, we estimate it will be HK$ 500k-700k after FRT and after adding some options.

However, we still find Model 3 will be more attractive; and more valuable to buy; by comparing it to some M3, AMG, Porsche models.

I am not talking about "whether 0 FRT should be extended by government", we just saying we estimate 0 FRT is ending soon.

 

[waidy]

This FRT issue was discussed during gathering because we found that we all put down HK$ 10000 for Model 3. I actually reserved two at Hong Kong and 1 at China.

None of us think that Model 3 will still enjoy 0 FRT by the time we can start to decide order it or not. It won't be a HK$300k car, we estimate it will be HK$ 500k-700k after FRT and after adding some options.

However, we still find Model 3 will be more attractive; and more valuable to buy; by comparing it to some M3, AMG, Porsche models.

I am not talking about "whether 0 FRT should be extended by government", we just saying we estimate 0 FRT is ending soon.

Could you do a petition like what we do in US? Here's our petition Increase the EV tax credit cap per manufacturer. | We the People: Your Voice in Our Government

 

[markwj]

This FRT issue was discussed during gathering because we found that we all put down HK$ 10000 for Model 3. I actually reserved two at Hong Kong and 1 at China.

None of us think that Model 3 will still enjoy 0 FRT by the time we can start to decide order it or not. It won't be a HK$300k car, we estimate it will be HK$ 500k-700k after FRT and after adding some options.

However, we still find Model 3 will be more attractive; and more valuable to buy; by comparing it to some M3, AMG, Porsche models.

I definitely think that this will be less of an issue in 3 to 5 years time, or even in 2020 when the Model 3 and other lower priced EVs come to Hong Kong. But, I am still concerned about the _actual_ price of Model 3. Remember the Model S was HK$448,400 when launched in USA (US$50k after tax credit), but the cheapest Model S that you can get today is HK$636,400, for a 42% premium. Judging by Model S experience, clearly US$35k is not the model that will be available in Hong Kong. Perhaps US$50k would be a better starting point. Add on FRT and that is way above the BMW 3 series this is supposed to be comparable to.

I just hope that the government looks at the situation today and over the coming three years when deciding what to propose to Legco for approval.

Either that or just introduce a pollution tax and apply it fairly to all classes of vehicle.

The thing most concerning to me is the use of FRT as a disincentive to buy a vehicle (for road congestion purposes). For some, a private car is a luxury. For others, it is a necessity. Penalising those others is not reasonable, especially when it is clear that the government has not done enough to address the public transportation and other infrastructure issues in the non-urban areas of Hong Kong. Or what about if someone takes a vehicle off the road (scaps it), but replaced it with a new vehicle, and still gets charged FRT to combat road congestion? I feel it is better to address congestion with direct congestion charges, rather than indirect vehicle acquisition taxes.

 

[ck1116]

Could you do a petition like what we do in US? Here's our petition Increase the EV tax credit cap per manufacturer. | We the People: Your Voice in Our Government

Frankly, we can't convince ourselves that EV's 0 FRT is the right thing for Hong Kong society.

For myself and some of my friends, we would rather government helps EV owners to install wall charger if they really want to promote EV, many people in Hong Kong have difficulty to install wall charger, either not allowed or unreasonable high cost.

Charging is the biggest problem at HK now. Many Tesla owners are relying mainly on Super Chargers here, this creates some social problems and conflicts will happen soon, also very bad experience for EV owners.

 

[jl04]

I think people here can still accept the approach of FRT waiver for promoting further adoption of EV beyond March 2017 as the EV share shall still be less than 1% of total private cars in HK. But people will also in general be reluctant to support any incentives for purchase of LUXURY EV. The current FRT structure is in fact penalising higher retail priced private cars more (first $150K at 40%, next $150K at 75%, next $200K at 100%, thereafter at 115%).

I think the government may bring forward a slightly twisted FRT waiver program after March 2017 for continuing the promotion of EV adoption, for responding to society reluctance for giving incentives to luxury cars, AND not to complicating the taxing structure, by waiving the first 2 or 3 tiers, and taxing full on the remainder.

 

[gubes]

If the government "phases in" a gradual increase in FRT for EVs, it would still be ok for demand as people would assume higher re-sale values. Having said that, its probably better they don't touch it until the penetration gets to a meaningful level.

 

[Optic]

Model S penetration is about 10-15% of new vehicle registration. That is pretty high given there is only 1 model out there! I say it is time to phase OUT the frt exemption. Everyone has their opinion on what phasing out means or if there should be a phasing out, but I think 0 FRT on a $1m HKD car is ridiculous. In USA, they get about $10k USD tax break and even so it is getting phased out as the manufacturer reaches its exemption quota. Other countries, like Norway, are also phasing out its tax breaks/exemptions as these incentives were actually more popular than expected.

 

[markwj]

Model S penetration is about 10-15% of new vehicle registration. That is pretty high given there is only 1 model out there! I say it is time to phase OUT the frt exemption.

Actually about 7% of new private vehicle registration (for all EVs, with Model S being about 70% of that). What do you think that figure will be without the FRT exemption?

500,000 private cars on the road. <5,000 EVs. <1%. We've got a long way to go.

 

[Optic]

Actually about 7% of new private vehicle registration (for all EVs, with Model S being about 70% of that). What do you think that figure will be without the FRT exemption?

500,000 private cars on the road. <5,000 EVs. <1%. We've got a long way to go.

I think the change from 7% will be marginal. If anything it will even increase as we see more competition and more people joining the Model S band wagon. Imagine if anything over $80m gets taxed at 100%. Only the P85D will get affected, and these people are price insensitive.

Waiving FRT does not solve penetration per outstanding vehicle number, because FRT by design is charged as a First Registration Tax. So I don't see your point bringing up the 500k number. If anything, a rise in license renewal fee is required to persuade cars to swap to new cars. Your number of 7% is great, it has been on a rise for 3 years now, at some threshold, it means the FRT exemption has worked and got its benefits. And thus exemption needs to be relaxed and phased out slowly. A guidance by government on how FRT gets phased out might actually push EV adoption in the short run until the cheaper model 3 is out. A sudden knee jerk of removing the exemption is not good, nor is a sustained exemption.

Declaration of interest: I drive a model S and plan on upgrading to an X or refreshed S when my lease is due in 2 years.

 

[markwj]

The point of the 500,000 private car number is to show how far we have to go. Today, 99% of the private cars on the road are petrol fueled. We need to get that to 0%.

I think that any talk of phasing out FRT when only 1% of the private cars on the road, or even 7% of new private cars, are electric is very premature. The 7% number has been stable for two years now. I suspect that if we could look at only vehicles in the HK$500k-HK$1m price bracket, the percentage of EVs would be much higher than that thanks to Tesla. The way to grow the 7% number is to maintain the incentives and bring in more EV models in the HK$150k-HK$500k range. The way to make the number grow exponentially is to solve the home/workplace charging problem. Both those approaches are going to require substantial investment, with payback via improved air quality and the benefits that come with that.

The way to shrink the number is to remove the incentives. Everybody knows that.

If government / politicians are concerned about the perceived/actual loss of tax revenue, the solution is simple - increase FRT for petrol vehicles to offset the incentive for EVs. That fits the 'polluter pays' policy, and is revenue neutral. But to make that politically acceptable, we need a broad spectrum of EV models available here, and we need to be able to charge the vehicles at home/workplace - without that, the policy would be considered unfair.

By comparison, look at the situation with diesel fuel for shipping (which is by far the largest single polluter of air quality in Hong Kong). The government mandates use of fuel oil with less than 0.5% sulphur content, while everywhere else in the world the limit is 0.1%. The reason, as stated by government, is that there is simply not enough 0.1% sulphur fuel oil available for all the ships in Hong Kong waters to use it; so, they can't mandate that until the fuel is available. The situation with EVs is the same - government cannot push too hard for their adoption, until (a) the cars are available, and (b) the cars can be charged. That is going to take time.

 

[Optic]

Once again, FRT exemption success should not be measured via the number of EVs vs outstanding vehicles. It should be measured to % of first time registered vehicles. Stats can easily be twisted and interpreted in our own ways. And don't misinterpret the fact that people are asking for a complete hard phase out, I think most agree that FRT exemption is beneficial. And if your goal is to increase EV penetration per outstanding vehicle, FRT is not the most efficient way. The 7% and growing number of EV market share should not change much by imposing FRT on high end EVs. I think it would be beneficial to the community if the government was more transparent and let us know their timeline, we all know FRT will not last forever (even though some people want it to). HK vs other countries is already doing more to promote EVs. And yes I do see that there is tax lost on the price insensitive P90D buyers.

 

[FequalsMA]

I could be talking nonsense here but i'll throw it out there anyways.
As EV selection and infrastructure grows, I wish that a small FRT (10-15%) would be introduced for EV's while FRT for ICE goes further up.
This would be a great way to ween people off petrol.