Motor traders may buy and sell both new and used vehicles. When selling used vehicles, they can charge GST using the Discounted Sale Price Scheme or the Gross Margin Scheme (GMS). Under the Gross Margin Scheme, eligible traders are allowed to charge GST on the gross margin (i.e. difference between selling price and cost price) of the used goods. The GMS should only be applied to used goods purchased without GST.
IRAS’ past audits on motor traders revealed that many of these traders have been applying the GMS wrongly. For instance, they have either wrongly used the GMS on new vehicles or have accounted for the GST amount wrongly.
For example, ABC Motor Trading (“ABC”) sells new and used vehicles. GMS can only be used for calculating GST on sales of used vehicles which had been bought under the GMS or vehicles which has no GST charged on the purchase prices. GMS cannot be used on sales of new vehicles.
For new vehicles, ABC should have charged and accounted for GST on the selling price net of ARF, COE, RF and road tax. In the case of used vehicles for which ABC had claimed GST on, it should use the Discounted Sale Price Scheme (DSPS) to calculate GST on its subsequent sale.
The table below shows how GST should be accounted for on the sales of vehicles under the different scenarios:
|Type of Vehicle
|| Accounting of GST on Sale
|Used vehicles – bought under GMS or no GST paid on purchase from supplier
||Account for GST using GMS
|Used vehicles – GST paid on purchase from supplier
||Account for GST using DSPS
||Account for GST on selling price net of ARF, COE, RF and road tax
When computing the gross margin under the GMS, road tax, prevailing quota premium and transfer fee paid on the vehicle can be included as part of the purchase price of the vehicle. However, other expenses such as repair, re-spray, administrative charges, commission cannot be included as they do not form part of the purchase price of the vehicle.