UAE workers buy in bulk to beat VAT as small purchases prove too costly

Workers are feeling the pinch when they sip their daily cup of chai and are quickly learning that bulk and weekly grocery shopping will offset the VAT charge instead of purchasing small items from shops.

Since Value Added Tax was introduced to the UAE on January 1, many supermarkets have been rounding up prices due to a lack of small change.

Most residents were not aware that shops can now round up change of 5 and 10 fils to 25, 50 or 75 fils as per a recent clarification from the Department of Economic Development in Abu Dhabi.

When applying the 5 per cent VAT charge on a low cost item including food and beverages, the department said that should the bill amount to Dh10.05 after VAT, the customer can be charged Dh10.25 and if the bill is Dh10.35, the charge can be Dh10.50. The round up cannot exceed 20 fils however.

And while the change may seem meagre, the cost adds up and workers have suggested shops should show goodwill and waive 5 or 10 fils payable due to VAT instead of asking the customer to cough up more money.

“It’s not the overall VAT charge that is making a difference because that is a rule so that is okay. But it is the small things that we feel,” said Ahmed Ali, a factory worker in Sharjah.

“The stores say they have no change but they still don’t let go of the money. Instead they charge us more than the VAT amount and they make a profit,” he said.“It has not even been one week since the tax so it’s very early to say how it will affect us. The main worry for us is that everything will be a little more expensive but our salary will not increase. For us it’s very hard earned money, some people who make a lot of money may not bother about the change,” Mr Ali said.

Mr Ali and the three other men he shares a room with in a workers’ accommodation pay Dh6.50 in VAT on a Dh130 weekly purchase of groceries for the group.

But he said it hurts to pay 25 fils more every time he purchases a glass of steaming hot tea. Post-VAT, as he does not have the 5 fils change for a Dh1 cup of tea, the tea stall rings it up to Dh1.25.

“It’s better for us to buy all together. If I even buy a small bottle of milk daily, it will be more expensive. When it’s 5 per cent spread for all of us we don’t feel it,” he said.

“But just because I don’t have 5 fils change, why should I be charged 20 fils extra? When we go to work we have realised if we buy four or five glasses of tea together then 25 fils among all of us is okay.”

The men are understanding that it is more beneficial to buy non-perishables and share their provisions.

Khubiz or Arabic flat bread costs Dh2.50 and will cost 25 fils extra daily when rounded up so the men have decided to bulk purchase 25kg of rice instead.

“Instead of charging us extra, the stores should let the change go. We are regular people and they are making a profit,” Mr Ali said.Workers employed in construction and transport sectors or at beauty salons earn between Dh1,000 and 2,500 a month.

Many workers send a large portion of their earnings to family back home and live off as little as Dh400-600 a month. Spending Dh1 or more everyday on low cost items once charges are rounded up will prove costly to them.

Workers said they would have to curb on expenditure on snacks sometimes bought from shops since it would be cheaper to cook together at their accommodation.

“I will have to be more in control of my spending now. Five per cent in not too much but if I have two or five cups of tea a day then I will pay 50fils or Dh1.25 more every day. That is just too expensive for me,” said Pradeep Kumar, a driver in Dubai.

“We will need to hold on to our money and save.”