Will Tips Compensate for Service Tax Ban?

July 2, 2022

It is easier to be faithful to a restaurant than it is to a woman.” – Federico Fellini (1920- 1993), Italian film director and screen-writer.

Faithfulness to a restaurant is often reflected in the tips diners give to the waiters who serve them. The importance of tips waned as the hotel managements added service charges to the hotel bill itself. Now, the Central government has declared that such service charge is illegal and measures are being taken to curb this illegal practice as per media reports published on July 2, 2022 and excerpted below.

Soon, you can go to consumer panel if service charge levied

The new guidelines of the consumer affairs ministry will empower people to approach consumer commissions and the Central Consumer Protection Authority (CCPA) if hotels and restaurants seek service charge despite the ministry asking them to stop making the levy. It will be completely up to the customers to pay any amount as tip and eateries cannot directly or indirectly levy any charge more than the rate of food items.

Sources said the ministry in the next few days will come out with the fresh guidelines, which will have legal backing to deal with this menace. “Earlier there was no provision in the rules to seek redressal against such charge by the eateries. The earlier Consumer Protection Act had no provision for CCPA, which is now a nodal authority to address consumers' concerns," said an official.

The earlier guidelines issued in 2017, which were advisory in nature, had an optional provision of printing service charge in bills. Sources said since this provision had also created some ambiguity in the minds of consumers and eatery operators, the new guidelines will specify that levying service charge is "illegal".

The ministry had earlier informed the industry representatives that there is no legal sanctity attached to levying such a charge and that consumers often take the service charge as 'service tax' and end up paying this. The ministry had also said that considering entry of a customer to a restaurant or hotel as an implied consent to pay service charge is nothing but imposition of an unjustified cost as a condition precedent to placing an order for food. It had said this falls under restrictive trade practice under the Consumer Protection Act and the amended Act of 2019 defines what an unfair contract is.

Will the prospective declaration of service charge be taken lying down by the restaurants? They can increase the list price on the menu to closer to the service charge that would be declared illegal. There is also possibility of tipping regaining its old glory. Incidentally tipping does not always depend on the financial ability of the bill payer. For instance, Bill Gates went to a restaurant and paid $2 as tip. The waiter said: “Yesterday your son gave a $200 tip and you are giving only $2?” Bill Gates: “He’s a son of a billionaire. I’m the son of a farmer.”

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Comment on this article

  • vishnu bhat, bangalore

    Fri, Jul 08 2022

    ordering on zomato/swiggy (who add a fat delivery charge) is par for the course, not service charges, Sir. People that do not mind splurging at outings crib for such a small amount that goes to fill pockets of the workers that provide the service. strange priorities.

  • mohan prabhu, mangalore/canada

    Sat, Jul 02 2022

    service charges by any other term is an extra charge over and above the charges stipulated on the menu and it often goes to the owner to boost his revenue. It was designed to bring equity between servers so that the money goes to a common pot and shared equally by all servers (or waiters), including the cooks and kitchen staff, and this money is taken into account by the owner in establishing wages. In other words, owners want the patrons to subsidize them for their costs. Often the service money pot is not shared at all and goes to the owner's pockets. If a service charge is added, the Income Tax people will, of course, go for its share - you have to declare it as an income and pay tax; similarly, if a server/waiter ges a tip, tax laws of many countries require it to be declared as income, but of course, few will do that unless a rich man's son gives a hefty tip, like Bill Gates' son.!!

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