We are now a week into the VAT era, which is too early to pass judgement on how the country adjusts to life with the consumption tax, although not too soon to identify some kinks that could be ironed out. One area of immediate concern to many people is the principle of rounding up by stores and shopkeepers. As The National reported, the Department of Economic Development has said that shops in Abu Dhabi can round up the cost of items by up to 20 fils once the 5 per cent tax is applied. This is in part because small denomination coins, such as 1, 5 and 10 fils are rarely seen in circulation.
What are the alternatives to rounding up? One answer would be to bring small denomination coins back into more common usage so exact change would be offered to customers at stores, although the Central Bank has said there is already sufficient coinage in circulation. But making the 5 fils coin more common would be to buck a worldwide trend for removing small value change. The US withdrew the half-cent coin and the UK withdrew the halfpenny coin in the 20th Century, while more recently, in 2012, Canada stopped minting the penny coin. Ireland withdrew the 1 and 2 cents coins in 2015, the country is part of the eurozone, and allows shops to round up or down by up to four cents, which is the equivalent of 18 fils, a figure that is very close to the DED rounding recommendation in this country.
An alternative would be to look at the example of China, where cash is, if not quite obsolete, then in steep decline. Secure electronic payments are predicted to top US$45 trillion within three years in China, where most small transactions in stores are completed using digital wallet services such as WeChat Pay. Widespread adoption of digital wallets – Apple Pay was introduced in the UAE last year – would flatten the need for rounding and reduce some of the instant inflationary pressures it causes, particularly for lower-paid workers. Even other debit-card related solutions, such as Touch and Pay, would help take rounding out of circulation.
