VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price.
You can choose to use a margin scheme when you sell:
• second-hand goods
• works of art
• collectors’ items
You can’t use a margin scheme for:
• any item you bought for which you were charged VAT
• precious metals
• investment gold
• precious stones
For second-hand goods dealers, the margin scheme has been given as an option for paying tax on supply of second-hand goods. The benefit of opting for the margin scheme is that the dealer needs to pay tax only on the margin earned on sale. This is very useful for dealers who mostly purchase used goods from end customers. As there is no applicability of input tax credit on these purchases, these dealers need to pay tax only on the margin earned on sale. However, dealers opting for the scheme should ensure that ITC on the goods is not availed and the goods are supplied as is or after minor processing which does not change the nature of the goods.
The VAT Act states the following:
Art. 143. (1) The provisions of this Chapter shall apply to the supply by a dealer of second-hand goods, works of art, collectors’ items, antiques provided to him in the territory of the country or from the territory of another Member State by:
1. a non-taxable person;
2. another taxable person registered under this Act, when the subject of the supply is a good, exempted under Art. 50 para. 1 or from persons registered for VAT purposes in another Member State exempt from tax under the legislation of the country concerned on analogous grounds
3. another taxable person who is not registered under this law or by a taxable person of a Member State who is not registered for VAT purposes when the object of the supply is goods which are fixed assets within the meaning of the relevant accounting legislation ;
4. another dealer applying the special procedure of charging the price margin.