The goods & services tax or value-added tax is a value-added tax on the sale of services and goods in Australia. Introduced in 2000, the GST is a broad-based consumption tax applied only to Australian residents. The GST replaced the separate goods and services tax (SGST), the sales tax (HST), and the import tax.
For small and medium-scale industries, one of the important incentives which government offers to the various registered industries is to generate more employment for the unemployed people under the scheme of ‘Margin Scheme’. Under this scheme, the GST revenue is allowed to be set as a percentage of the cost of production, which ensures that the manufacturers, processing industries and service providers get the benefit of reduced tax. But, margins are capped at 2%, so any margin higher than 2% would be taxed.
The important role of the GST margin scheme
The GST margin scheme is a recent addition to the tax system and is a noteworthy advantage for those who use it. The application of GST margin scheme allows businesses to deduct input tax paid on inventory, which means it significantly benefits businesses that are buying in bulk. As long as your business has purchased at least 10,000 units worth of inventory, you can deduct 45% of the input tax paid on the inventory from your GST bill.
The GST margin scheme, as its name suggests, offers a margin to traders for the amount they invest in GST-registered goods. The scheme, which came into effect on April 1, 2019, allows traders to trade in goods without incurring GST. In other words, if you are in the FMCG business and you sell goods worth Rs. 1 lakh, you would have to pay GST of Rs. 30,000. But under the GST margin scheme, you can trade in goods worth Rs. 1 lakh and not get taxed. The idea behind the scheme is to encourage traders to buy GST-registered goods and thus, save tax. Therefore, the scheme can be termed a scheme of credit enhancement and credit smoothing.