Second-Hand dealers who purchased goods free of GST may use the Gross Margin Scheme (GMS) to charge and account for GST.

What is 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.

As GMS is a special scheme that allows you to account GST (i.e. output tax) only on the gross margin. The buyer of your used goods is not allowed to claim any input tax on the goods, even if he is a GST-registered person.

You cannot use the loss from one sales transaction to offset the gross margin on another sales transaction for the purpose of determining the GST (i.e. output tax) to be accounted by you.

You are required to self-review your eligibility and submit a form to IRAS before applying the Gross Margin Scheme to your sales. Please refer to the section “Applying for the Scheme”.

Charging GST on gross margin

Under the Gross Margin Scheme, 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 nil 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 scheme

  1. You are in the business of selling used goods

    For instance, you are in the business of selling second-hand motor vehicles electrical appliances, furniture, jewellery, etc.

    You should not use the scheme if you make one-off or occasional sale of used goods such as disposal of business assets.

  2. The used goods were purchased free of GST.

    This includes goods purchased from:

    1. Non-GST registered suppliers (e.g. an individual); or
    2. A GST-registered supplier who used the Gross Margin Scheme to supply the goods to you. You are to obtain a sales invoice (not a tax invoice) from the supplier to support your purchase made under the Gross Margin Scheme. No input tax is claimable on the purchase of the used goods under the Gross Margin Scheme.

Second-hand motor vehicle dealers

If you are in the business of selling second-hand vehicles, please visit our webpage on Motor Trade and the e-Tax Guide GST: Guide for Motor Vehicle Traders (PDF, 641KB) for more details.

    Points to consider

    Updated! Before you apply for GMS, you should consider the following factors:

    1. You will have added responsibilities to ensure that all conditions for applying GMS are satisfied and able to fulfil all obligations as stated in the self-review and declaration form.
    2. You will have to maintain records and accounts for all used goods sold under GMS (PDF, 66KB).
    3. You will have to ensure that GST is correctly accounted on the gross margin of used goods sold by you.
    4. The incorrect use of GMS will make you liable to penalties under the GST legislation.

    Applying for the scheme

    Complete and submit the Self-review of Eligibility and Declaration on Use of Gross Margin Scheme Form after verifying that all conditions in the Form are satisfied.

    You can begin to use the Gross Margin Scheme from the date of submission of the Form. No further approval is required from IRAS.

    If you have previously received IRAS' approval to use the scheme, you can continue to use the scheme so long as you still satisfy the conditions in the Form. You do not need to submit the Form again. You would have to re-apply for the use of the scheme if there is a change of taxable person (e.g. when there is a change in business constitution), since the scheme is not transferable from one taxable person to another.


    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 2 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.