GUIDE ON RELIEF FOR SECOND- HAND GOODS (MARGIN SCHEME)

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Taken From Custom Malaysia Official Site, download the PDF file here

GUIDE
ON
RELIEF FOR SECOND-
HAND GOODS
(MARGIN SCHEME)
ROYAL MALAYSIAN CUSTOMS
GOODS AND SERVICES TAX



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
i
Copyright Reserved © 2013 Royal Malaysian Customs Department.
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................... 1
Overview of Goods and Services Tax (GST) ......................................................... 1
GENERAL OPERATIONS OF THE INDUSTRY ....................................................... 1
Margin Scheme...................................................................................................... 1
ELIGIBLE PERSONS FOR THE MARGIN SCHEME ............................................... 2
GOODS QUALIFYING UNDER THE MARGIN SCHEME ........................................ 2
Definition of “used motor vehicle” .......................................................................... 3
Transactions that qualify the goods to enter the scheme ....................................... 3
CONDITIONS IMPOSED UNDER THE SCHEME .................................................... 3
HOW MARGIN SCHEME OPERATES ..................................................................... 4
Acquisition by GST Margin Scheme Registered Person ........................................ 4
Transaction Using Margin Scheme (output tax) ..................................................... 5
GST MS Registered Person Using Normal Transactions (Output Tax) ................. 6
TRANSACTION INVOLIVING CONNECTED PERSONS ........................................ 6
CALCULATION AND ACCOUNTING FOR OUTPUT TAX ...................................... 6
When to account for output tax .............................................................................. 7
RECORDS ................................................................................................................ 7
BUYING A SECOND-HAND MOTOR VEHICLE FROM AN INDIVIDUAL/ NON-
REGISTERED PERSON ........................................................................................... 9
SELLING USED MOTOR VEHICLES ....................................................................... 9
HIRE PURCHASE TRANSACTION USING MARGIN SCHEME............................ 10
FREQUENTLY ASKED QUESTIONS .................................................................... 12
FEEDBACK AND COMMENTS .............................................................................. 12
FURTHER ASSISTANCE AND INFORMATION .................................................... 13



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
1
Copyright Reserved © 2013 Royal Malaysian Customs Department.
INTRODUCTION
1.
This industry guide is prepared to assist businesses in understanding matters
with regards to GST treatment on Relief for Second-hand Goods (Margin Scheme).
Overview of Goods and Services Tax (GST)
2.
Goods and Services Tax (GST) is a multi-stage tax on domestic consumption.
GST is charged on all taxable supplies of goods and services in Malaysia except
those specifically exempted. GST is also charged on importation of goods and
services into Malaysia.
3.
Payment of tax is made in stages by the intermediaries in the production and
distribution process. Although the tax would be paid throughout the production and
distribution chain, only the value added at each stage is taxed thus avoiding double
taxation.
4.
In Malaysia, a person who is registered under the Goods and Services Tax
Act 20XX is known as a “registered person”. A registered person is required to
charge GST (output tax) on his taxable supply of goods and services made to his
customers. He is allowed to claim back any GST incurred on his purchases (input
tax) which are inputs to his business. Therefore, the tax itself is not a cost to the
intermediaries and does not appear as an expense item in their financial statements.
GENERAL OPERATIONS OF THE INDUSTRY
Margin Scheme
5.
GST is normally due on the full value of goods sold. The margin scheme
allows a GST Margin Scheme registered person (GST MS registered person) who
meets all the conditions to calculate and charge GST on the margin i.e. the
difference between the price at which the goods were obtained and the selling price.
If no margin is made (because the purchase price exceeds the selling price) then no
GST is charged and payable.



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
6.
For the purpose of GST, margin under this scheme means the difference
between selling price and purchase price. If there is any value being added to the
eligible goods such as cost for repairing, this cost is part of the margin other than
profit. In other words, the value added must be included in the selling price and not
the purchase price.
7.
Businesses buying and selling goods can usually recover the GST they are
charged on their stock as input tax. But if they obtain most of their stock from
members of the public who are not GST registered or from other dealers using the
Margin Scheme, they will have no GST to recover. The Margin Scheme means that
GST is still charged but only on the value being added to the goods or profit margin
made on selling the same goods. By calculating GST on the margin, the scheme
therefore avoids double taxation as second-hand goods re-enter the economic cycle.
8.
A registered person who does not wish to use the margin scheme for eligible
goods must account for GST in the normal way. Under the Margin Scheme, there is
no input tax to be claimed on the purchase (input tax not claimable) and the GST is
allowed to be charged on the ‘margin’. However, if an eligible item is sold but all the
conditions of the scheme cannot be met (e.g. record keeping, invoicing and
accounting requirements) the Margin Scheme cannot be used and the sale must be
dealt with outside the scheme in the normal way, accounting for GST on the full
selling price.
ELIGIBLE PERSONS FOR THE MARGIN SCHEME
9.
Any taxable person involved in the business of buying and selling second-
hand motor vehicles is eligible to apply for the scheme subject to approval given by
the Royal Malaysian Customs Department (RMCD).
GOODS QUALIFYING UNDER THE MARGIN SCHEME
10. The scheme is applicable for used motor vehicles where the approved person
under this scheme bought the motor vehicles from unregistered person including
individuals. This scheme is also applicable for used motor vehicles which were



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
initially subject to sales tax before GST comes into force to be transacted in GST
era.
Definition of “used motor vehicle”
11. “Motor vehicle” means a mechanically propelled vehicle intended or adapted
for use on roads.
12. For GST purposes, used motor vehicle is any used motorised vehicle which
has been registered with the Road Transport Department in Malaysia. This definition,
however, does not include foreign registered motor vehicles.
13. Motor vehicles would include the following:-
(a) motor vehicles designed for the transport of persons such as cars,
vans, motorcycles, ambulances, buses;
(b) motor vehicles designed for the transport of goods such as lorries,
vans, trucks;
(c) motor vehicles other than those principally designed for the transport of
persons or goods, i.e. special purpose motor vehicles such as crane
lorries, concrete–mixer lorries, road sweeper lorries, fire-fighting
vehicles, trailers, tractors, forklifts.
This list is not exhaustive.
Transactions that qualify the goods to enter the scheme
14. Motor vehicles can qualify to use the margin scheme after the first and
subsequent sales. Goods which were not subject to sales tax before GST era can
qualify under this scheme if the first sale takes place within GST era. Examples of
goods that fall under this category are motorcycles with certain c.c. and tractors.
CONDITIONS IMPOSED UNDER THE SCHEME
15. Any person may apply for this scheme subject to the following conditions:
(a) he must be a GST registered person.



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
(b) the goods must be previously purchased from an individual or a non-
GST dealer (no GST was incurred on the purchase); or the goods were
previously bought from a GST MS registered person who uses the
Margin Scheme; or input tax blocked goods purchased from GST
registered person.
(c) the goods purchased and sold under the margin scheme must be
substantially the same goods. However, repair, alterations,
refurbishment and renovations which do not affect the nature and the
essential character of the goods are allowed.
(d) GST must be accounted on the margin between the selling price and
the purchase price.
(e) no tax invoice to be issued by the approved person (supplier) under this
scheme and hence no input tax to be claimed by the purchaser. He
must meet the record keeping requirements of the scheme
HOW MARGIN SCHEME OPERATES
Acquisition by GST Margin Scheme Registered Person
Scenario 1
SELLER
Individual
Non-registered
person
BUYER
GST MS registered
person
No input
tax to claim
• No tax invoice issued
• No GST charged



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
16. Under scenario 1, a buyer who is a GST MS registered person can purchase
goods from individual or non-registered person. No tax invoice is issued by the seller
(i.e. GST is not chargeable on the sale). No input tax is to be claimed by the buyer.
The buyer will then have the choice of whether to apply the margin scheme or not
when he sells the goods.
Scenario 2:
17.
Under scenario 2, a buyer who is GST MS registered person can also
purchase second hand motor vehicle from a GST MS registered person. No tax
invoice is issued by the seller but GST is chargeable on the margin. No input tax to
be claimed by the buyer although GST is imposed (but only on the margin). The
buyer will then have the choice whether he wants to apply the margin scheme or not
when he sells the goods.
Transaction Using Margin Scheme (output tax)
Scenario 3:
Individual
GST registered person
GST MS registered person
Non-registered person
BUYER
SELLER
GST
MS registered
No Tax Invoice
margin scheme
SELLER
GST MS
registered person
BUYER
GST MS
registered person
• no tax invoice
• GST charged
on margin
no input tax
to claim



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
18. Under scenario 3, when a GST MS registered person sells the motor vehicle
using margin scheme to an individual, non-registered person, GST MS registered
person or GST registered person he will issue a normal invoice and account for
output tax based on the margin. The output tax is inclusive in the margin. However
the buyer cannot claim the tax as his input tax credit.
GST MS Registered Person Using Normal Transactions (Output Tax)
Scenario 4:
19. Under scenario 4, when a GST MS registered person sells the motor vehicle
to buyers using normal transaction, tax invoice has to be issued and output tax to be
accounted based on the actual sale value.
TRANSACTION INVOLIVING CONNECTED PERSONS
20. Under the margin scheme, the output tax charged is based on the difference
between the selling price and purchase price (margin). However, for transaction
involving connected persons, the selling price would be based on open market value.
CALCULATION AND ACCOUNTING FOR OUTPUT TAX
21. Simple illustration on the calculation of output tax (Margin is inclusive of GST)
(GST MS Registered person – Normal transaction)
BUYER
Tax Invoice
(Output Tax on
actual price)
GST
Individual
GST registered person
GST MS registered person
Non-registered person
SELLER



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
Example 1:
Abby car dealer who is a GST MS registered person bought a used car from
Chan second-hand car dealer, who is not a GST registered person, at a price
of RM45,000. Abby then sells the used car to an individual, Mr. Pillai, for
RM50,000 using the margin scheme.
Selling Price
RM50,000
Cost Price
RM45,000
Gross Margin
RM(50,000 – 45,000)
=RM5,000
GST
6/106 x RM5,000
= RM283.00
(not to be shown on invoice)
Value of the car
Selling price less GST
= RM(50,000 – 283.00)
= RM49,717.00
Output tax
RM283.00
Input tax
RM0.00 (no input tax claimable by the buyer
as the seller is not allowed to issue tax
invoice)
When to account for output tax
22. Any MS registered person must account for output tax on the supply that he
made under the Margin Scheme at the earlier of the following times:
(a) when the goods are removed or made available;
(b) when an invoice is issued; or
(c) when a payment is received by him.
RECORDS
23. Generally, a taxable person under GST is required to keep records on
business transactions. Records are documents which include all books of account or
relevant computer print-outs if a computer is used, as well as supporting documents.
If the record is in an electronically readable form, a manual to the software must be



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
available. For further details, please refer to Guide on Tax Invoice and Record
Keeping.
24. A business selling goods under the Margin Scheme, in addition to the above
requirement, must keep the purchase invoice and a copy of a sale invoice, together
with a stock book or similar record.
25. The stock book or similar records that need to be maintained and kept is as
follows:
(a) Purchase details
(i)
stock book number;
(ii) date of transaction;
(iii) purchase invoice number;
(iv) seller’s name and address;
(v) vehicle registration, engine and chassis numbers;
(vi) model and make;
(vii) total purchase price.
(b) Sales details
(i)
date of sale;
(ii) sales invoice number;
(iii) buyer’s name and address;
(iv) total sale price;
(v) vehicle registration, engine and chassis numbers;
(vi) model and make.
(c) Accounting details
(i)
purchase price;
(ii) selling price;
(iii) margin in sale;



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
(iv) tax rate on the date of the sale;
(v) GST due.
26. For accounting purposes, the approved person is also allowed to include other
items in the stock book or similar record but details listed above must always be
shown. In addition to that, the stock book or similar record must always be up-to-
date and the records must be kept for 7 years.
BUYING A SECOND-HAND MOTOR VEHICLE FROM AN INDIVIDUAL/ NON-
REGISTERED PERSON
27. When buying a second-hand motor vehicle from an individual or non-
registered person. A stock book must be maintained showing:-
(a) seller’s name and address;
(b) stock reference number (in numerical order);
(c) date of acquisition (purchase);
(d) particulars of car such as registration number, make, model, vehicle’s
engine and chassis number;
(e) total purchase price.
28. The seller must sign and state the date of sale on the payment voucher,
certifying that he is the seller of the car at the stated price.
SELLING USED MOTOR VEHICLES
29. When any MS registered person sells a used motor vehicle using the margin
scheme, he must maintain the following records;
(a) The sales invoice issued under the Margin Scheme must show the
following:-
(i)
seller’s name and address;
(ii) GST registration number and Margin Scheme Number;



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
(iii) buyer’s name and address;
(iv) stock number;
(v) invoice number;
(vi) date of invoice;
(vii) particulars of car such as registration number, make, model,
vehicle’s engine and chassis numbers;
(viii) total sale price;
(ix) seller’s signature and date on the invoice certifying on it that
“input tax deduction has not been and will not be claimed in
respect of the vehicle sold in the invoice”;
(x) statement showing that this is not a tax invoice” in that sale
invoice.
HIRE PURCHASE TRANSACTION USING MARGIN SCHEME
30. This is a transaction whereby a buyer of a car obtains financial assistance
from a financial institution; the loan will form a substantial portion of the purchase
price while the rest will be paid by the buyer. Usually, the buyer will place some
deposit before buying the goods. This means that the deposit may become part of
the payment made for buying the goods. In other words, the deposit is not
refundable if it becomes part of the payment and hence it is subject to GST. The
calculation of GST chargeable and payable is shown in the example below:
Example 1:
If a buyer buys a second-hand car from you (the car that you have bought
from an individual who is not registered under GST), you may use the Margin
Scheme when selling the car since GST was not charged by the owner
previously.
The buyer placed a deposit (as his down payment) of RM10,000 for the
purchase of the second-hand car. You will issue a receipt to him for the down
payment. Your selling price is inclusive of the down payment. The down
payment is part of the payment and hence it is subject to GST. GST is



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
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Copyright Reserved © 2013 Royal Malaysian Customs Department.
accounted based on the total amount of selling price (i.e. down payment +
loan). However, the issue here is that how GST should be accounted
especially when the down payment is paid in different taxable periods from
the loan approved by a financial institution. In such a case, the amount of
GST accountable would depend on whether the amount of the down payment
is greater than the amount of the margin or not.
Figure 1: The illustration of how output tax should be accounted.
Scenario 1
Down payment > Margin
Scenario 2
Down payment < Margin
Selling Price
RM50,000
(inclusive of GST)
RM50,000
(inclusive of GST)
Down payment
RM10,000
RM10,000
Loan
RM40,000
RM40,000
Cost Price to dealer
RM45,000
RM35,000
Margin
RM(50,000 – 45,000)
= RM5,000.00
RM(50,000 – 35,000)
= RM15,000.00
GST chargeable
on the sale
6/106 x RM5,000
= RM283.00
6/106 x RM15,000
= RM849.05
GST on
down payment
6/106 x RM10,000
= RM566.03
6/106 x RM10,000
= RM566.03
GST to be
accounted
RM283.00
This amount will be
accounted wholly from
down payment as GST
chargeable on the sale is
limited to RM283.00 only.
RM849.05
This amount will be
accounted partly from
down payment
(RM566.03) and partly
from loan (RM283.02)
31.
Under scenario 1, the whole amount of output tax chargeable is RM283.00.
Since the down payment is greater than the margin, the whole amount of output tax
has to be taken out from the down payment. This output tax would need to be
declared in GST return for the taxable period where down payment is received.



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
12
Copyright Reserved © 2013 Royal Malaysian Customs Department.
32. Under scenario 2, the whole amount of output tax chargeable is RM849.05.
Since the down payment is smaller than the margin, part of the amount of output tax
has to be taken out from the down payment, i.e. RM566.03. This amount would need
to be declared first, in GST return of the taxable period which the down payment was
received. The remaining of the output tax will be taken out from the loan, i.e.
RM283.02. This amount would need to be declared in GST return for the taxable
period where the loan is approved.
33. For both scenarios, a normal invoice is issued to the financial institution.
FREQUENTLY ASKED QUESTIONS
Charging Output Tax
Q1: Do I have to account for GST if I sell used motor vehicles at a loss?
A1: No, GST need not be charged if the sale is at a loss.
Q2: What are the implications under the margin scheme?
A2: The seller only accounts for GST on the margin (GST-inclusive) but he cannot
claim the GST embedded in the purchase price.
Claiming Input Tax
Q3: How does the Margin Scheme affect GST on my overheads?
A3: You can claim GST on all your business overheads such as office rental and
utilities. But you must not add any of these costs to the purchase price of the
goods you sell using the scheme.
Q4: My supplier charged me GST on parts that I replaced on used motor
vehicles purchased under Margin Scheme. Can I claim the GST incurred
as my ITC?
A4: Yes, you can claim the input tax incurred.
FEEDBACK AND COMMENTS



GUIDE ON RELIEF FOR SECOND-HAND GOODS (MARGIN SCHEME)
Draft as at 11 November 2013
13
Copyright Reserved © 2013 Royal Malaysian Customs Department.
34. Any feedback or comments will be greatly appreciated. Please email your
feedbacks or comments to either Mohd Hisham B. Mohd Nor
(m_hisham.nor@customs.gov.my) or Aminul Izmeer B. Mohd Sohaimi
(izmeer.msohaimi@customs.gov.my).
FURTHER ASSISTANCE AND INFORMATION
35. Further information can be obtained from:
(a) GST Website : www.gst.customs.gov.my
GST Phone : 03-88822111
(b) Customs Call Centre :
• Tel
: 03- 7806 7200/ 1-300-888-500
• Fax
: 03- 7806 7599
• E-mail
ccc@customs.gov.my


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