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Abu Dhabi, UAEFriday 21 September 2018

No more rounding is a change for the better

After VAT, it is right that consumers should be returned the correct money at the tills

Abu Dhabi, United Arab Emirates - December 27th, 2017:  Workers at local shop Baqala to go with a story on VAT. Wednesday, December 27th, 2017 in Abu Dhabi. Chris Whiteoak / The National
Abu Dhabi, United Arab Emirates - December 27th, 2017: Workers at local shop Baqala to go with a story on VAT. Wednesday, December 27th, 2017 in Abu Dhabi. Chris Whiteoak / The National

The latest development in the UAE’s introduction to VAT, which favours consumers, arrived as a welcome surprise. Earlier this month, the Department of Economic Development announced that shops in Abu Dhabi could round up by up to 20 fils on transactions. Now, the DED has declared that businesses must instead return exact change to consumers.

This adaptation will appease consumers and help those in need. Many residents had been bulk-buying supplies to offset the additional costs of rounding up. Thanks to the latest decision, a Dh1 bottle of water that previously cost Dh1.25 after rounding up, will now be sold for Dh1.05. Naturally, the burden to come up with the change will fall on shops.

And therein lies a new challenge. As The National reported, the DED’s reversal on rounding up follows assurances from the UAE’s Central Bank that “the amount of coins including small denomination in the market is sufficient”. But if necessary, the Bank insists, it will mint more.

Nonetheless, many will say that small denomination coins, including 1, 5 and 10 fils, are seldom seen in circulation, potentially spelling significant stress for small businesses to return exact change. While large retail chains and supermarkets can afford to shoulder the additional cost by rounding down in the absence of smaller currency, more modest businesses cannot. Sadly, the new rule may also end the charming flexibility that characterises corner shop transactions.

Re-minting is one solution, though it might make this country an outlier in a world that is leaving small change behind. While smaller denominations have been withdrawn in Europe and Canada, China is increasingly cashless. Back in 2015, 44 per cent of the Kenyan economy passed through mobile payment platform M-Pesa. Moreover, the UAE itself has made strides in welcoming new mobile payment channels.

VAT is an important step in this country’s economic transformation. Last week Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai announced that 70 per cent of the revenue accrued will be channelled back into local government projects. Given estimates of Dh12bn in its first year and Dh20bn in its second, VAT’s potential impact is huge. While those are big numbers with significant potential windfalls for the country, it is the small and important victory of being able to ask for and receive the correct change that we should recognise today.

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