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Service Charges or TIP: It is Consumers’ Right to Decide

According to Dr. Trishna Sarkar, Economics Professor at Delhi University, service charge is the only extra money that a staffer at a restaurant can expect as the owners never share any profit which they earn owning to inflated bills with them.

Binny Yadav | New Delhi |

By calling up the restaurant owners for a meeting over the issue of “forced…service charges, often fixed at arbitrarily high rates”, the Department of Consumer Affairs has addressed an important issue raised by the restaurant-goers for a long.

The move by the Dept of Consumer Affairs is largely lauded by the tax experts and economists who have been pointing out for a long that consumers are being fleeced in the name of service charges as “hardly any restaurant mentions it during their services that service charges are optional”, and restaurant-goers, due to various reasons end up paying the inflated bills which include service tax, GST along with service charges-which is absolutely optional.

The government’s call comes after the consumer affairs secretary Rohit Kumar Singh raised the issue in a letter to the National Restaurant Association, categorically mentioning that restaurants and eateries are collecting service charges from consumers by default, although it is supposed to be voluntary and at the discretion of consumers.

The issue of service charges has two dimensions, one is about the right of low-salaried staff or wage earners who hardly get a share in the profit of the restaurant and have this opportunity in form of an extra amount through service charges. The other is the right of consumers who should not be forced to pay service charges which is optional as they can rightfully choose either not to pay or pay directly to the person serving them in the restaurant in the form of TIP which in itself means, To Insure Promptness. Which is solely the decision of the customer.

According to Dr. Trishna Sarkar, Economics Professor at Delhi University, service charge is the only extra money that a staffer at a restaurant can expect as the owners never share any profit which they earn owning to inflated bills with them.

Although neither the service charge nor the TIP is mandatory, both have some flip sides. “While service charge should ideally ensure extra income to the restaurant staff there is no system which can guarantee that service charges are equally and fairly shared with the staff unless the restaurant staff is affiliated to some trade union. In absence of this guarantee restaurant staff has no bargaining power where they can neither expect TIP as it is supposed to be paid as service charges and distribution of service charges remains absolutely in the hand of the restaurant owners.,” explains Dr. Trishna.

Most of the time, consumers get fleeced due to a lack of proper understanding of the difference between various taxes levied on them by the restaurants. Even if they want to clarify with the owners/ managers of the restaurants they are hardly given a proper picture.

A statement by the Dept. of Consumer Affairs pointed to the guidelines issued by the department in April 2017, “The guidelines note that entry of a customer in a restaurant cannot by itself construed as a consent to pay a service charge. Any restriction on entry of the consumer by way of forcing her/him to pay the service charge as a condition…to placing an order amount to ‘restrictive trade practice’ under the customer Protection Act”.

According to the statement four key issues, “pertaining to the services charges” will be discussed at the meeting,

-restaurant making service charges compulsory

-adding service charges in the bill in the guise of some other free of charge

-suppressing information from consumers that service charge is optional and voluntary

-embarrassing consumers in case they resist paying the service charge

This meeting between the restaurant owners and the Dept. of Consumer Affairs, on June 2, therefore brings some hope to both, the restaurant staffer as well as the customers

The customers however should learn to differentiate between the service charges and service tax.

What are Service Charges

This is the fee collected to pay for services related to the primary product or service. This is the money added to the final bill a customer gets after availing of the services of any restaurant. This is the 10 percent of the total bill which is supposed to be distributed amongst the staff of the restaurant. Ideally speaking this is the TIP that any customer wishes to give to the person serving him or her in the restaurant by their choice and this TIP can not be forced upon and is fairly optional.

What is Service Tax

It is a tax levied by the government service providers or certain services transactions but is actually borne by the customer. It is categorized under Indirect tax.