Service charge is a charge levied by the restaurant for the service provided to customers. It’s like compulsory tips. It’s commonly charged at 5%-20% of the bill and the restaurant owner is free to charge whatever amount they want.
As per Indian law, service charge was always illegal. Quality of service is irrelevant to the whole argument.
Service tax, however, should not be confused with service charge. Service tax is the tax levied by the government on the services provided by restaurants. Service tax is the same in all states and is currently 4.94% on the total bill. If you happen to see service tax on the total bill exceeding about 5%, you have every right to question it.
The government has announced that customers eating at restaurants are not obligated to pay service charges. If they are not happy with the service provided by the restaurant, they can simply refuse to pay additional service charge.
Optional service charge is generating mixed response from people. Some feel it is the right move that will prevent restaurants from levying the unreasonably high charges that too at their decided rate which can be anywhere between 5% to 20%. Others feel this is going to demoralize small restaurant owners and waiters.
1. An end to unreasonable charges: There are already enough taxes that a consumer has to pay for eating at restaurants. VAT and service tax are enough to scare common people from enjoying a good brunch/dinner at a quality restaurant. To top that up restaurants levy a compulsory service charge and additional tips to waiters which is direct plunder.
2. For crappy services: Not all restaurants are well maintained. To cut cost they make all sorts of compromises on quality of service, hygiene and food. Either the food is not good enough or the dishes smell too much of detergent. Customers don’t get heard when they complain and yet they are obligated to pay service charge which is plain rip off.
3. It should never have been mandatory: In the wake of several complaints, The Department of Consumer Affairs consulted with the Hotel Associations of India who clarified that service charge should always have been discretionary and depending on the service provided by the restaurant, people can decide whether or not they want to pay service charges.
4. Unfair trade practice: “The Consumer Protection Act, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice and that a consumer can make a complaint to the appropriate consumer forum established under the Act against such unfair trade practices.” The complaints of restaurants and their services were too many and the government was forced to take this action.
5. Right implementation: The restaurants have also been asked to display the “optional service charge” board clearly in the eating and billing area. The National Restaurant Association of India even went ahead to say that people are free to avoid going to restaurants that levy service charge mandatorily.
6. Food bill: The costs of food at quality restaurants are high enough, far higher than the real cost of that item. They already charge extra for compensating on their establishment and to meet the maintenance. Adding additional charge was plainly unjust.
1. Demoralizing budding restaurants: The move will demoralize newbie in the businesses who have invested a lot of money to get started and find that they couldn’t charge for the services they hired. They too have to pay the waiters, bellboy, cleaning people and other staff supporting the services of the restaurant.
2. Customers won’t deny at big restaurants: The classy restaurants have queues of customers waiting for their turn. They could easily use this and levy the charges. Customers won’t deny service charges in these places to avoid embarrassment. They will pay the service charge even if it is 20%. It is small restaurants that will face the downside of optional service charges.
3. Losing jobs: The employment of so many people depends on restaurants. The salary of waiters, cooks and other staffs depend largely on incentives earned on the number of customers their restaurant attract. The restaurants are largely popular for giving a very low part of the profit to staff. If the restaurant decides not to make service charge optional as most are still reluctant to, the employees at the restaurants will suffer.
4. Some places will close up entirely: In the age of social media, if customers join hands at listing the restaurants that ask for service charge, those places will have no show of customers entirely and will eventually have to shut down.
5. Not many people tip the waiters: Even if service is good and the food is excellent, not many people go forth to pay tip. Even if they enjoyed a lavish meal of Rs 6000, they are not going to pay an additional Rs 600 as tip unless included in the bill as service charge. Unless people understand that service charge doesn’t go to restaurant owners but into the incentives of the staff, they are going to enjoy the waived off charge even when the service provided is above par.
Making it optional for customers to choose whether they want to eat at a place that levies service charge or not is acceptable but forcing restaurants to display a board saying “optional service charge” may be unjust. Why not just let the customers decide whether or not they choose to eat at a restaurant that will levy service charges instead of first enjoying the service and later deny paying the charges?