Gross Margin Scheme

Reference: https://www.iras.gov.sg/taxes/goods-services-tax-%28gst%29/general-gst-schemes/gross-margin-scheme?utm_source=chatgpt.com

IRAS Gross Margin Scheme (GMS)

Overview

The Gross Margin Scheme (GMS) is a special GST scheme administered by the Inland Revenue Authority of Singapore (IRAS). It allows eligible businesses dealing in second-hand goods, motor vehicles, and certain qualifying products to account for GST only on the gross margin (selling price less purchase price), instead of on the full selling price.

Under this scheme, GST is calculated only when the selling price exceeds the purchase price. If the selling price is equal to or lower than the purchase price, no GST is payable on that transaction.

For detailed eligibility requirements and operating rules, please refer to the official IRAS webpage:

Gross Margin Scheme (GMS) https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/general-gst-schemes/gross-margin-scheme

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Highnix Setup

Before processing transactions under the Gross Margin Scheme, the following setup is required.

Create a GST Tax Type

Create a GST tax type for GMS.

Suggested setup

Field	Value
Tax Type	NA-GSM
GST Rate	9.0%
Sales GL Account	2253 Output GST-NA

Note

The prefix "NA" is recommended because GST is not displayed on customer invoices under the Gross Margin Scheme. The GST is computed internally and posted into the GST Output account (GL Account 2253).

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Create a Sales Tax Group

Create a sales tax group.

Suggested name

Sales Tax-GMS-NA

Include Shipping: No (Shipping charges are not part of the Gross Margin Scheme calculation.)

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Create a Purchase Tax Group (Optional)

If your business also purchases goods from suppliers using the Gross Margin Scheme, you may create a purchase tax group.

Suggested name

Purch Tax-GMS-NA: This setup is optional and depends on your business requirements.

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Create an Item Tax Type

Under Item Tax Exemption, create a new item tax type.

Example:

GMS-Gross Margin Scheme - 9%

Configure this item tax type so that it is exempt from every GST tax type except the GMS tax type (NA-GSM) created earlier. This ensures that GMS items cannot accidentally be taxed using the normal GST calculation.

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Configure Inventory Items

For every inventory item that will be sold under the Gross Margin Scheme:

• Open the Inventory Item setup.
• Set the Item Tax Type to:

GMS-Gross Margin Scheme - 9%

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Configure Customers

Customers purchasing goods under the Gross Margin Scheme should use the GMS Sales Tax Group.

Example:

Sales Tax Group

Sales Tax-GMS-NA

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Purchasing Goods

When receiving or purchasing goods under the Gross Margin Scheme, users must enter the Serial Number or Batch Number for each qualifying item.

The system uses this information to identify the original purchase cost when the item is subsequently sold.

Important: Each Serial Number or Batch Number should uniquely identify the purchased item. Accurate entry is essential because the GST calculation is based on the purchase price of that specific item.

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Sales Processing

After the initial setup is completed, users simply process purchase and sales transactions as normal.

No additional GST calculation is required during invoicing.

The system automatically:

• Retrieves the original purchase cost using the Serial Number or Batch Number.
• Calculates the gross margin.
• Computes the GST payable on the gross margin only.
• Records the GST into the configured GST Output GL account.
• Includes the transaction in the GST reporting.

Customer invoices continue to be printed without displaying GST separately, in accordance with the Gross Margin Scheme requirements.

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GST Reporting

All Gross Margin Scheme transactions are automatically included in the GST reporting process.

When the GST Tax Report is generated, GMS transactions will appear under the configured GMS tax type together with the GST amount calculated by the system.

No manual adjustment is required.

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Important Notes

• Gross Margin Scheme items must not be mixed with normal GST-taxable items within the same invoice.
• Every GMS item must have a valid Serial Number or Batch Number recorded during purchase.
• The purchase price used for GST computation is taken from the original purchase transaction of the corresponding Serial Number or Batch Number.
• If the selling price is less than or equal to the purchase price, no GST is payable for that item.
• Shipping charges are excluded from the Gross Margin Scheme calculation.