1. A GST-registered person is required to charge and account for 9% GST for the supplies of goods and services made in Singapore. The GST that is charged and collected is known as GST Output Tax and it must be paid to IRAS within a month from the end of the accounting period.
2. Apart from the basic GST which is to charge and account for 9% GST, there are various GST Scheme which caters to specific business sectors. One of them is the Gross Margi Scheme (GMS), which caters specifically to second-hand dealers who purchased goods free of GST. Second-hand dealers are those business involve in the selling of second-hand goods such as cars, jewellery, electical appliances, etc.
3. Gross Margin Scheme (GMS) is a special scheme that allows you to account GST output tax only on the gross margin. Under this scheme, the GST Output Tax is computed based on the gross margin of the second-hand goods supplied, not the full value. Consequently, the buyer of the used goods is not allowed to claim any input tax on the goods, even if the buyer is a GST-registered person.
4. Under the Gross Margin Scheme (GMS), GST is accounted for on the gross margin instead of full value of the goods supplied, as follows:
Gross Margin = A – B
A is the consideration received for goods sold, i.e. the selling price.
B is the consideration paid for goods purchased, i.e. the purchase price.
5. If A (selling price) is lower than or equal to B (purchase price), the gross margin is treated as nil and GST is not chargeable. If A (selling price) is greater than B (purchase price), then GST output tax is accountable on the gross margin based on the tax fraction i.e. Gross Margin x 9/109.
6. For example, for a business that sells second-hand cars, a car was purchased from a non-GST registered person at $1,000 and was subsequently sold to a customer for $1,500. Based on the Gross Margin Scheme, the GST Output Tax computations are as follows:
GST = ($1,500 – $1,000) x 9/109 = $41.28
Value of standard-rated supply = $1,500 – $41.28 = $1,458.72
Output tax due: $41.28
7. As mentioned, the Gross Margin Scheme (GMS) to compute GST Output Tax applies only if you are in the business of selling second-hand motor vehicles, electrical appliances, furniture, jewellery, etc. The scheme cannot be used if your business only make one-off or occasional sale of used goods such as disposal of business assets.
8. Please contact us if you need any assistance to understand how Gross Margin Scheme works and whether it applies to your business. At PL Biz Consulting Pte Ltd, we have the right people and expertise to help explain and guide you on the various GST Schemes under Singapore GST.
