Supplies Made by Pawnbrokers
As a pawnbroker, you make two types of supplies for GST purposes:
1) exempt supply from the provision of loans from which you derive interest income; and
2) taxable supply from the sale of forfeited pledges.
You need not charge GST on interest while GST needs to be charged at the standard-rate of 8% for the sale of forfeited pledges.
Claiming of GST
GST incurred for your business, such as utilities and rental expenses, can be claimed in full if you satisfy the De Minimis Rule. Otherwise, as a Regulation 34 business , you can claim only a portion of GST incurred for your business, excluding disallowed expenses , based on the following rules:
- input tax directly attributable to the making of taxable supplies - claimable in full;
- input tax directly attributable to the making of exempt supplies - not claimable;
- input tax that cannot be identified as directly attributable to either taxable or exempt supplies (i.e. residual input tax), the amount that can be claimed is computed using the following formula
For more information, please refer to GST: GST: Partial Exemption and Input Tax Recovery (PDF, 459KB).
Use of Gross Margin Scheme
Since you are in the business of selling used goods which are typically purchased free of GST (i.e. from non-GST registered individuals), you may be eligible to use the Gross Margin Scheme (GMS) to account for output tax on the sale of forfeited pledges.
Under the GMS, GST is accounted for on the gross margin instead of full value of the goods supplied.
Gross Margin = Selling Price (inclusive of GST) - Purchase Price
GST = Gross Margin x 8/108
If you wish to use the GMS, please 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 GMS from the date of declaration. No further approval is required from IRAS.
For more information, please refer to the Gross Margin Scheme.
What is the 'purchase price' when calculating the Gross Margin?
Before 1 Apr 2015, you as the pawnbroker, take title to unredeemed pledges exceeding $50, only if the unredeemed pledges remain unsold at public pawnbroking auctions. You are regarded as having purchased these unredeemed pledges at the “reserve price” and hence, the reserve price is the purchase price you should use when calculating the gross margin.
The existing pawnbroking auction system has been removed since 1 Apr 2015. If a pledge is not redeemed beyond the agreed redemption period and gets forfeited, the pledge becomes your absolute property and the outstanding loan and any interest secured on the pledge are deemed to be fully repaid.
Hence, for the purpose of computing the gross margin under the GMS after the removal of the auction system, your purchase price will be taken to be total sum of the loan and interest1 accrued in your accounting records.
1 Permitted profit and fees' of the Pawnbrokers Act 2015
Price representation under the Gross Margin Scheme
When you use the GMS, you should represent that GST is accounted for under the GMS on all your marketing materials such as website and displays within your business premises.
GST registered business must show GST-inclusive prices on all price displays (e.g. price tags, price lists, advertisements, publicity brochures, website). Prices that are quoted, whether written or verbal, must also be GST-inclusive.
We note that it is the industry practice to display the weight instead of prices for gold items because of daily fluctuating prices of gold. You should however, quote GST-inclusive prices to your customers at the point of sale. For non-gold items such as precious stones and luxury timepieces, the price displays, if any, must be inclusive of GST.
For more information, please refer to Displaying prices.
I am unable to track the purchase price of each forfeited pledge. Can I still use the Gross Margin Scheme?
If you are unable to track the purchase price of your goods, you are not eligible for the Gross Margin Scheme.
I derive most of my revenue from interest income and my taxable turnover from the sale of forfeited pledges is very low. I have to hire a GST staff to assist me with GST reporting but I can only claim a small amount of input tax every quarter. Should I deregister from GST?
The cost of being GST-registered may outweigh the benefits that you enjoy. You should consider the costs (e.g. responsibilities) and benefits (claiming GST on business purchases) as a GST-registered business carefully.