I am used to questions like “where can I get free gift cards?” or “how can I sell my gift cards?” but someone once asked me “Are Gift cards taxable?” and my immediate response was No and Yes. Gift cards are not taxable but can be taxed on some occasions. I know, the answer is a bit confusing but let me make it make sense to you.
First of all, let’s understand what gift cards are to get clarity as to why my response was diplomatic.
What are gift cards?
Gift vouchers, gift certificates, or gift tokens are all different names for Gift cards. They are cards with monetary value that can be used instead of money for purchases. These cards can also be converted to different currencies and cryptocurrencies like Cedis, Naira, Dollars, Bitcoin, Litecoin e.t.c through middlemen companies that sell and buy them.
So why are they not taxable?
Why are they not taxable? The “NO” response
In most developed and developing countries like the USA, Nigeria, or Ghana, inheritance, and gifts are not taxable by law and Gift cards like the name implies are gifts and fall under the non-taxable category. So they are naturally not taxable.
In some cases, though they can be taxed. This is down to technicalities concerning the rules and regulations of a country and what the gift cards are used for.
This takes us to the “YES” part of my response.
When and Why are they taxable? The “YES” response
Gift cards are gifts, yes, and gifts aren’t taxable but employee salaries are. What am I trying to say here? When an employer decides to use the cards as a fringe benefit for his workers then that gift card may or may not be taxed. Taxable fringe benefits include employee salary bonuses. When gift cards are used for such payments they cease to be gifts but rather a means of salary payment so they will be taxed.
Gift cards are here to stay and will continue to be used as a means of celebrating people or as a means of investment, so it’s best we all know the ABCs of this innovation.