GROSS MARGIN SCHEME
The business activities of a motor vehicle trader include importing of motor vehicles, sale of new an
used vehicles etc. All motor vehicles must be registered with LTA. LTA imposes regulatory charges on the sale of new vehicles. Regulatory charges do not attract GST as they do not relate to the provision of goods and services. All other charges received in relation to supply of goods and services are subject to GST. The sale of a new vehicle differs from that of a used vehicle. For sale of a new vehicle, GST is applicable on the selling price of the vehicle including the regulatory charges. Whereas in the case of a second hand vehicle, the GST is charged under the Gross Margin Scheme or the Discounted Sale Price Scheme.
In Singapore, if your total taxable supplies is more than $1million, you are required to register for GST. Failing in the registration leads to a fine of $10,000 and a penalty of 10% of the tax due. You are not allowed to charge GST on your sales transactions before your GST registration is approved. Once your application is approved, you would receive a Letter of Notification indicating your GST Registration number, the effective date of GST registration and other important information
Taxable supplies refers to the supplies of goods and services other than the goods that are exempted.
Usually GST is charged on the transaction value of the goods. In the case of second hand dealers, the goods may be allowed to pay at a margin. Margin refers to the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST will be charged. This method is followed to avoid double taxation.
For example, a company say which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014 make (Original price Rs. 5 lakhs) for Rs. 3 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The supply of the car to the company for Rs. 3 lakhs shall be exempted and the supply of the same by the company to its customer for Rs. 3.5 lakhs shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-, i.e.the difference between the selling and the purchase price of the company.
Second hand dealers who purchase goods free of GST can use the Gross Margin Scheme to charge and account for GST
Charging GST on Gross Margin Scheme
Gross Margin Scheme can be applied only to goods purchased free of GST.These goods include goods purchased from a Non-GST registered individual or supplier or from a Registered GST supplier who has used Gross Margin Scheme to supply goods.
Under the gross margin scheme, the GST is accounted for the gross margin instead of full value of the goods supplied. It is a special scheme that allows you to account GST 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 to be accounted by you
Gross Margin = Selling Price (inclusive of GST) – Purchase Price
When the selling price is lower than or equal to the purchase price, the gross margin is treated as NIL and no GST is charged.
FACTORS TO BE CONSIDERED BEFORE APPLYING FOR GROSS MARGIN SCHEME
1.It is to be ensured that all the requirements and obligations are fulfilled
2.GST is correctly accounted
3.Incorrect use of Gross Margin Scheme can lead in penalties
REQUIREMENTS UNDER THE GROSS MARGIN SCHEME
The business should be a second hand business, for example second hand dealers of motor vehicles, electrical appliances etc.
The Goods were purchased from Non-GST registered supplier or a registered GST supplier (who did not receive a tax invoice and no input tax was claimed by you who has used the Gross Margin Scheme
For GST purpose, a second hand vehicle does not include a vehicle which was previously registered overseas. The reason being if the vehicle is imported in Singapore, the owner would have to pay a lot of duties and charges.
GROSS MARGIN SCHEME FOR SALE OF SECOND HAND VEHICLES
Under gross margin scheme, GST is accounted on the difference between Selling price and the purchase price of the motor vehicle.
For eg: Selling price 25000 and Purchase price 20000, then Gross margin will be calculated on (25000-20000 = 5000). i.e. Gross Margin will be 5000 x 7/107 = 327.10.
Similarly if you sell the vehicle at a loss, no GST is to be accounted.
For eg: Selling price is 8000 and Purchase price is 10,000 then the Gross Margin is( 8000-10000 = -2000) . As this is a loss, no GST will be accounted.
If you incur LTA charges such as road tax, prevailing quota premium and transfer fee upfront before any sale is transacted, you can include them in your purchase price. However, o t he r expenses su ch as repair, respray, administrative charges, commission, etc cannot be added. If you have incurred GST on these other expenses, you can claim the GST incurred as input tax
If you are recovering the LTA charges from the customer separately, you cannot include them as part of the cost of the vehicle for the purposes of computing the gross margin.
Import of Vehicles
When vehicles are imported, the GST is payable on the Cost Insurance and Freight Cost alongwith Excise duties.
Custom Duty $ 6,750
GST payable 7% x (CIF + Custom Duty)
= 7% x ($12,000 + $6,750) = $1,312.50
The different situations and the requirements that arise during the import of a vehicle are ;
|1||Motor vehicles temporarily exported for repair overseas and re-imported after repair||The vehicles are re-imported within 3 months from date of export;|
|The vehicles must be registered by Customs officer at the time of export and re-import|
|The vehicles are identified to the satisfaction of Customs officer; and|
|A certificate is produced from the repairer to the effect that new parts 4 have or have not been added.|
|2||Motor vehicles temporarily imported for repair, modification or treatment and re-exported subsequently||The vehicles are re-exported within 3 months from date of import;|
|The vehicles must be registered by Customs officer at the time of import and re-export;|
|The vehicles are identified to the satisfaction of Customs officer; and • Security is furnished to cover the GST on the vehicles imported.|
|3||Spare parts imported f or repair, modify or treat motor vehicles temporarily imported for repair and the vehicles are re-exported subsequently||The vehicles are re-exported within 3 months from date of import;|
|The vehicles must be registered by Customs officer at the time of import and re-expor|
|The vehicles are identified to the satisfaction of Customs officer; and •|
|Security is furnished to cover the GST on the spare parts imported.|
|4||Motor vehicles imported for the purpose of demonstration, training or racing in Singapore||The vehicles are not used on any public road in Singapore;|
|The vehicles are not to be sold or transferred to any person or organisation in Singapore.|
|If the vehicles are subsequently sold in Singapore, GST is payable on the CIF value or selling price, whichever is the higher, plus custom duty|
|5||Motor vehicles imported for display and use at exhibitions, fairs or other similar events||A Declaration is issued by the Director General of Singapore and an inward permit is given by the Director General of Singapore Customs|
|The vehicles must be re-exported within the validity period|
|If the vehicles are subsequently sold in Singapore, GST is payable on the CIF value or the selling price, whichever is the higher, plus customs duty.|
Record Keeping for Sale of Second-Hand Vehicles
For sale of Second hand vehicles, the following documentation is required;
The purchase and sales/tax invoices
A stock book or similar records
1) Stock book number 2) date of purchase 3) purchase invoice number 4) name of seller 5) vehicle registration, engine and chassis numbers 6) make and model
1) date of sale 2) sales invoice number 3) name of purchaser
1) Purchase price and GST incurred (if applicable) 2) selling price and GST charged (if applicable)3) method of disposal (Gross Margin or Discounted Sale Price Scheme) 4) margin on sale (if applicable) 5) GST rate on date of sale 6) GST amount accounted as output tax
When you sell the vehicle under Gross Margin Scheme, the following details are required;
You must issue a sales invoice showing:
- your name, address and GST registration number
- buyer’s name and address o invoice number
- invoice date
- stock book number
- particulars of vehicle (registration, engine and chassis numbers, make and model)
- total price
- signature of issuer
- The statement ‘This vehicle is sold under GST Gross Margin Scheme. Both the seller and buyer cannot claim any input tax on the vehicle.
Discounted Sale Price Scheme for Sale of Second-Hand Vehicles
Under the Discounted Sale Price Scheme, GST is charged on 50% of the selling price of the vehicle. This is regardless of whether the vehicle is sold at a profit or loss.
Gross Margin Scheme is applicable on the business of selling used goods. Applicable for goods purchased free of GST from a non GST registered supplier or a registered GST supplier who has used the Gross Margin Scheme and no tax invoice has been issued.Incorrect use of Gross Margin Scheme will make you liable to penalties under the GST legislation.
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