If you buy and resell second-hand goods in Singapore, understanding the Gross Margin Scheme (GMS) can help you avoid overpaying GST. It’s a method that changes how GST is calculated, especially when you are not allowed to claim input tax on purchases.
Most businesses are familiar with the standard GST model; pay GST on purchases, collect GST on sales. However, this model does not always work well for second-hand goods that have already been taxed previously.
This is where GMS comes in. It ensures that GST is applied only on the profit margin you earn from the resale. This prevents double taxation and keeps your GST reporting aligned with the guidelines from IRAS.
Not registered for GST yet? Or unsure if GMS fits your business model? PLCO Singapore can walk you through the process. Reach out via WhatsApp, call, or email for more information!
Understanding Gross Margin Scheme
What Is Gross Margin Scheme?
The Gross Margin Scheme (GMS) is an approved GST scheme for businesses that sell second-hand goods in Singapore.
Instead of charging GST on the full selling price, businesses only pay GST on the difference between the selling price and the purchase price — this difference is known as the gross margin.
This is important because many second-hand goods are bought without GST (eg, from individuals or non-GST registered sellers). Since no input tax can be claimed, applying GST on the full resale price would result in double taxation.
The GMS solves this by taxing only the profit made on the resale.
To put it simply, the GMS makes GST fairer for businesses reselling used goods, by focusing the tax on the actual value added.
How is this different from standard GST?
Normally, GST is charged on the full price of a sale. Businesses pay GST on their sales but can claim back the GST they paid on their purchases — called input tax. This way, GST only applies to the value added at each step.
But for resale businesses, especially those buying from consumers or non-GST registered sellers, there is no input tax to be claimed. Charging GST on the full resale price would tax the same item twice. Hence, the Gross Margin Scheme helps businesses avoid double taxation.
Who Can Use the Gross Margin Scheme?
The Gross Margin Scheme is only designed for GST-registered businesses that deal in second-hand goods, used vehicles, antiques, collectables, or items bought without input tax.
To qualify, you must meet these key conditions:
- You bought the item without paying GST
This usually happens when you buy from individuals or non-GST registered sellers.
- The item is resold in the same condition
This applies if the item is resold in the same state or after minor repairs that don’t significantly change it. Major upgrades or repurposing may disqualify the item.
- You keep proper records
You must be able to prove the original purchase, resale price, and how you calculated your margin to stay compliant.
How to Calculate GST Under Gross Margin Scheme
Under the Gross Margin Scheme, GST is not charged on the full selling price. It is only charged based on the gross margin. Here’s how to calculate:
| GST on margin | = Gross Margin x GST rate |
| = (Selling price – Purchase price) × GST rate |
Example 1: Thrift Seller
Imagine you run a small shop selling pre-loved clothes. You purchase a second-hand dress from someone for $20, then resell it for $50. Assuming the GST rate is 8%, the GST on margin would be:
- Gross margin = $50 – $20 = $30
- GST on margin = $30 × 8% = $2.40
Even though the customer pays $50 for the dress, you only need to account for $2.40 as GST, since tax is applied only to your profit margin. The remaining $47.60 covers your cost and profit.
Example 2: Used Car Dealer
Let’s say you run a business selling second-hand cars. You buy a car from a non-GST registered individual for $15,000, and you sell it for $18,000. Assuming the GST rate is 8%, the GST on margin would be:
- Gross margin: $18,000 – $15,000 = $3,000
- GST: $3,000 × 8% = $240
Instead of paying GST on the full $18,000, you only report $240, which reflects the GST on your actual profit.
Want to Register for the Gross Margin Scheme? Here’s What to Do
The Gross Margin Scheme is officially offered by IRAS (Inland Revenue Authority of Singapore). If your business sells second-hand goods, antiques, or used vehicles, this scheme might be a good fit, especially if you buy from individuals or non-GST registered suppliers.
If you have not registered for GST or need assistance applying the scheme correctly, feel free to reach out to PLCO Singapore. They’ll guide you through registration, accounting, and applying the scheme to your sales.
Conclusion
The Gross Margin Scheme allows GST-registered businesses to avoid paying tax on the full resale price of second-hand goods by taxing only the profit margin. If your business deals in used items, antiques, or second-hand vehicles, adopting this scheme can improve cash flow and simplify your GST reporting. Just make sure you meet the eligibility criteria and keep proper records.
Not registered for GST yet? Or unsure if GMS fits your business model? PLCO Singapore can walk you through the process. Reach out via WhatsApp, call, or email for more information!
