GST-registered businesses selling second-hand goods or providing hire purchase financing may use the Gross Margin Scheme (GMS) to charge and account for GST.
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What is the Gross Margin Scheme?

A GST-registered person is required to charge GST at the prevailing rate on the full value of the goods he sells.

The GMS is not compulsory and does not apply to the provision of services and the sale of interest in or right over land. Under the GMS, GST (i.e. output tax) is computed on the gross margin. The buyer (including the hirer under a hire purchase arrangement) cannot claim any input tax on GMS purchases, even if he is a GST-registered person.

The supplier must satisfy all eligibility conditions before using the GMS. Improper use of the GMS will render the supplier liable to penalties under the GST legislation. Any under-accounted GST will also be recovered from the supplier. The supplier should use the Self-Review of Eligibility to Use the Gross Margin Scheme (GMS) checklist to perform a self-assessment and to better understand the requirements of the Scheme. 

Accounting for GST on the gross margin

Under the GMS, GST is accounted for on the gross margin instead of full value of the goods supplied.

Gross Margin = A – B

where 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.

If A (selling price) is lower than or equal to B (purchase price), the gross margin is treated as zero and GST is not chargeable. However, the selling price is to be reported in Box 1 (Total value of standard-rated supplies) of the GST return.

If A (selling price) is greater than B (purchase price), then GST (i.e. output tax) is accountable by you on the gross margin based on the tax fraction i.e. Gross Margin x 9/109.

Example 1: Gross Margin Scheme

You are in the business of selling second-hand cars. You bought a car from a non-GST registered person at $1,000 and sold the car to your customer for $1,500 on 5 Jan 2024.

Based on the Gross Margin Scheme:

GST = ($1,500 - $1,000) x 9/109 = $41.28

For GST reporting purposes

Value of standard-rated supply: $1,458.72 (i.e. $1,500 - $41.28)

Output tax due: $41.28

 

Conditions for using the GMS

For information on the eligibility conditions, please refer to paragraph 5.7 of GST: General Guide for Businesses.

FAQs

If I sell used goods using the Gross Margin Scheme, can I issue a tax invoice to my customers?

No. You cannot issue a tax invoice for sales made under the Gross Margin Scheme. You can only issue a normal sales invoice which must have the following details:

  1. Your name, address and GST registration number;
  2. Your customer's name and address;
  3. Invoice number;
  4. Invoice date;
  5. Stock book number;
  6. Description of goods including unique identification number (where available)
  7. Total price;
  8. Your signature and the customer's signature; and
  9. The statement 'Goods are sold under GST Gross Margin Scheme. Both the seller and buyer cannot claim any input tax on the goods.'
Please note that the GST chargeable is not to be shown on the invoice.
I make two sales transactions using the Gross Margin Scheme. For the first transaction, there is a loss (i.e. selling price is lower than purchase price). Can I use the loss to offset the gross margin on the second transaction for the purpose of determining the total GST to be accounted for?

No. For the first sales transaction, no GST has to be accounted for. For the second sales transaction, you have to account for GST on the gross margin of the goods.

You cannot offset the loss in the first sales transaction against the gross margin on second sales transaction for the purpose of determining the total GST to be accounted for.

I have bought goods from a GST-registered supplier who used the Gross Margin Scheme. Can I claim input tax on the purchase?

No, you cannot claim any input tax on the purchase.

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