Promotional gift card schemes are a hidden tax grab

Promotional gift cards and prepaid credit card promotions aren’t the bargain they appear to be.

I’m not talking about the gift cards you buy in a shop when you can’t decide what gift to buy. The issue here relates to promotional gift cards you receive when you buy a car or TV or tires.

Instead of just reducing the price of the item, the retailer charges you a higher price, and then gives you a gift card or prepaid credit card as a “sweetener.”

While there might be some advantage for the seller, like inducing you to shop in their store in the future or getting promotional considerations from the credit card company, it’s a bad deal for the consumer.

In effect, you are just getting your own money back after paying sales tax on it. As a result, anything you buy with these cards results in paying the sales tax all over again.

The ones who make out like bandits are the federal and provincial governments, who get their sales taxes paid multiple times. Therefore, the ones who should be protecting consumers are failing to do so because they are making millions on the scheme.

This is how it works. Instead of paying 13 per cent HST on an item purchased at a lower price and then paying 13 per cent HST on whatever you buy with the money you saved, now you will pay 13 per cent on the same item purchased at a higher priced and an additional 13 per cent on whatever you buy with the money you get back through the promotional gift card.

Therefore, anything purchased with these cards will cost you 26 per cent in sales tax. And if that purchase earns you another promotional gift card, anything you buy with that card will cost you 39 per cent in sales tax.

If these gift cards were for trivial amounts it might not be a big issue. However, these promotional cards are often on big ticket items and can amount to hundreds of dollars. On the purchase of a car, we are talking about $500 or more.

Unfortunately this type of marketing promotion is growing in popularity and consumers seem blissfully unaware of the underlying sales tax compounding that occurs with this business model.

Nobody in Canada should get tricked into paying 26 per cent or more in sales tax through some devious promotion.

Currently, the Canadian Consumer Protection Act doesn’t protect us from being taken advantage of by these tax compounding schemes. Canadian consumers deserve to have better protection, but since that’s unlikely to happen, they should at least be better informed.

Steen Petersen is a retired information technology professional who has worked for both government agencies and private industries.

Nobody in Canada should get tricked into paying 26 per cent or more in sales tax through some devious promotion