In Singapore to own a car, you will be paying a huge load of tax to the government. Take my classmate’s BMW, she has paid the following to the government:
Open Market Value (OMV)= $58,000
Thus Additional Registration Fee (ARF) will cost 100% of OMV =$ 58,000
Excise Duty: 20% OMV= $11,600
Registration Fee: $140
Certificate of Entitlement= $45,000 (few months ago)
GST: OMV x 7% (approximate) = $ 4,000
Total tax payable to government coffers: $118,740
The total cost of her car was about $210,000 then, which means the gross profit margin for the car dealer was 43.4%.
In order to own her dream car, she has to contribute in excess of $100,000 to nation building, I have respect for that.
Good thing is that she only took a 1 year loan and has only a couple of months to fully pay up her car. As for me, it will be unlikely that I will ever own a BMW, probably the furthest I would go is a Toyota Camry.
My rationale is simple. Consider a $200,000 lump sum investment to grow on a compounded basis of 10% (1.1^10), this initial sum would grow to $518k after 10 years. The opportunity cost of $318k means that she might have to work another additional 3 years to fund her retirement. Coupled with her 2 years salary to purchase the car at the onset, she potentially could have retired 5 years earlier.
Yup, 10 % PA might not seem realistic. But if one has the investment horizon and purchase some China Equity fund, we should be looking around this level of returns. China will be overtaking America as largest economy in my lifetime, according to most analysts.
Well, to each his/her own. I prefer to retire earlier and spend my days reading, writing and travelling when I am still able. As for owning a nice car, I think I will hitch a ride when I meet up with her in school instead.
Life is tough, retire early. That’s for me.