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GST Margin Scheme for Second Hand Car Dealer in Malaysia

Businesses can usually recover the GST charged on their acquisition as their input tax credit. However, if they obtain most of their stocks from members of the public or non-GST registered persons or from other dealers using the Margin Scheme, they will not be able to recover any GST (i.e. Second Hand Car Dealer).

To help up the used-car dealer who is facing the issue on double taxation the second-hand goods, the Government has allowed them to apply for the “Margin Scheme” which allows them to impose the GST only on the profit margin of a used vehicle instead of the full taxable value of the vehicle.

Any GST Registered Persons can apply for Margin Scheme online via TAP System.

Under Regulation 77(1) of the GSTR 2014 stated that subject to subregulation (2), a taxable person is eligible to apply for the scheme to the Director General if he is:
(a) registered under section 20 of the GST Act 2014, and
(b) in the business of buying and selling second-hand motor vehicles licensed under the Second-Hand Dealers Act 1946.

The margin scheme allows an approved person as defined under regulation 75 of the Goods and Services Tax Regulation 2014 (GSTR) who meets all the conditions imposed under regulation 77 of the GSTR 2014 to calculate and charge GST on the margin i.e. the difference between the price at which the goods are supplied (selling price) and the price at which the goods were acquired (purchase price). If there is no margin (because the purchase price exceeds or equals to the selling price), then no GST is imposed for such supply.

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 of repairing and refurbishment, these costs become part of the margin besides profit. In other words, the value added must be included in the selling price and not in the purchase price.

Under the Margin Scheme, there is no input tax to be claimed on the purchase. If an eligible goods is sold but the conditions of the scheme have not been complied (e.g. record keeping, invoicing and accounting requirements), the Margin Scheme will be revoked and the sales must be dealt with outside the scheme in the normal way where tax has to be charged at a standard rate and accounted for on the full value of the goods sold.

The Margin Scheme is only applicable for used motor vehicles as laid out in Regulation 76 of the GSTR 2014. The acquisition of the motor vehicles by the approved person is from the following status of sellers:
(a) a non-GST registered person including individual (no GST incurred on the purchase);
(b) an approved person under MS who uses the Margin Scheme (GST was charged on the margin); or
(c) a GST registered person who sells blocked input tax goods (no GST incurred on the purchase).

When the car dealer under Margin Scheme choose to sell the motor vehicle to a buyer using normal transaction, tax invoice has to be issued and output tax has to be charged and accounted for based on the actual sales value. (This is done when the buyer want to claim the input tax credit of the motor vehicle)

Any approved person under MS must account for output tax on the supply that he made under the Margin Scheme at the earlier of the followings:
(a) when the goods are removed or made available;
(b) when an invoice is issued; or
(c) when a payment is received by him.

You have to prepare monthly report known as Lampiran B – 0, P.T. GST Bil. 2E (refer to Appendix 2) and submit it to the GST office (controlling station) within 15 days after the end of one calendar month. The template of Lampiran B – 0, P.T. GST Bil. 2E can be downloaded from the GST portal.

For further information, please see Guide on Margin Scheme.

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Related Links:

Overview of Goods and Services Tax (GST) in Malaysia
Overview of Specific GST Guide in Malaysia
Do I Need to Register For GST in Malaysia?
Goods And Services Tax (GST) Offences and Penalties in Malaysia
GST List of Zero-Rated Supply, Exempted Supply and Relief in Malaysia