Gross Margin Scheme

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.

Conditions for using the GMS

1. You must operate a business in:
   1. Selling second-hand goods (such as used motor vehicles, used jewellery). In this case, you are only allowed to apply GMS on the supply of second-hand goods. If you are in the business of selling second-hand vehicles, please also visit our webpage on Motor Trade and the e-Tax Guide GST: Guide for Motor Vehicle Traders for more details.
   2. Providing hire purchase financing as a financier who does not add a mark-up to the price of goods being supplied under hire purchase. This person is referred to as “pure financier”. Pure financiers are allowed to apply GMS on the supply of both new and used goods supplied under hire-purchase agreements. If you are a pure financier, please also refer to the e-Tax Guide GST Treatment of Hire Purchase Agreements and Financing Instruments.

          The GMS should not be used by businesses that make one-off or occasional supplies of eligible goods.

2. You purchased the goods from either non-GST registered individuals or businesses, or GST registered suppliers who had used the GMS and where you had obtained sales invoices (not tax invoices) from these suppliers showing that the goods were supplied to you under the GMS.

     You can check the GST registration status of your suppliers via this link.

3. You cannot claim input tax on your purchases from non-GST registered individuals or businesses, and GST registered suppliers who supply goods to you under the GMS.

4. You will not issue to the buyers tax invoices or any similar documents that separately display the GST charged on GMS sales.

5. For goods sold under the GMS, you will account for GST (output tax) by applying the tax fraction to the gross margin. The gross margin is calculated as the difference between the selling and purchase prices of each sale, inclusive of GST. When a sale results in zero gross margin or a loss, no GST is accountable. Losses incurred on sales under GMS cannot be offset against gross margins from other sales. Additionally, you must report the value of goods supplied under GMS as standard-rated supplies in your GST returns.

6. Unless otherwise agreed to or prescribed by IRAS, you must maintain records and accounts for all goods sold under the GMS.

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