Service charge

Mostly upscale restaurants charging a service charge

The government is developing a new set of rules to prevent restaurants from charging service fees to customers.

Last week, Consumer Affairs Minister Piyush Goyal said restaurants would not be allowed to collect service charges and would make them compulsory. The government considers this an “unfair commercial practice”. Many restaurants consider tips to be a service charge and charge a mandatory fixed percentage. Traditionally, tips are given voluntarily by customers in appreciation for good service and are rarely an exact percentage of the bill.

Restaurant owners in Bengaluru are concerned about the government’s decision. “Our position on this has been the same since 2017. Charging service fees is not an unfair business practice. You cannot call something illegal or unfair when it comes to a global standard,” says Mukesh Tolani, Head of Bengaluru Chapter, National Restaurants Association of India (NRAI).

Restaurants in Bangalore charge between 5-10% service charge. This is in addition to the CGST and SGST added to the food prices listed on the menu.

According to the Bruhat Bangalore Hotels Association, only 10-15% of restaurants in the city charge a service charge, and most of them are fine dining. “Many 5-star hotels in the city, such as the Taj chain, have not charged service fees for the past five years,” explains PC Rao, president of the association. The association welcomes the decision to remove the service charge. “If the government passes a law against the mandatory collection of service fees, we have no problem,” he adds.

Ministries are working against the grain, says Amit Ahuja, owner of AA Hospitality. “While one department considers the collection of service charges an unfair practice, another wants to collect GST on it. Service charges accrued by the restaurant are taxable. We all pay the GST on it,” he says Metrolife.

He believes that when diners skip the service charge, those who are affected are servers, chefs and general staff. “We divide the service fee among all employees based on a point system, and this way each employee gets a share,” adds Ahuja.

Kiran Reddy, owner of Wanderers Pub, Kalyan Nagar, started collecting service fees in December 2021. “The pandemic has had a negative impact on the industry and we had no other choice. Also the staff thought there should be a service charge because we were probably the only pub that didn’t charge it,” he says.

The pub donates 20% of the service fees it collects to NGOs each month. “It was a unanimous decision taken by the whole team. We wanted to give back to society,” he adds.

“Prices will go up”

Nikhil Gupta, owner of The Pizza Bakery and Paris Panini, believes that removing the service charge will have a ripple effect and will ultimately hurt consumers. If the service charge is removed, restaurants in the city “will have no choice but to raise prices,” he said. “On the menu, we charge food and beverages as a product. If you’re dining out, it’s fair that you also pay for the service,” he adds.

While he charges a 10% service charge at The Pizza Bakery, a fine-dining restaurant with nine branches in the city, his other business Paris Panini, with eight branches in the city, does not charge a service charge. “It follows a self-serve format, so we don’t charge a service fee,” he says.

Incentives matter

Tenzin, a waiter at a Church Street restaurant, says incentives play a big role. “It’s fair that customers pay for the service they receive. This can take the form of tips or service charges,” the 27-year-old explains.

The staff of Matteo Coffea on Church Street agrees. “We don’t take a service charge from customers, but tipping is at the discretion of the customers. Tips are accumulated and divided equally among staff members,” the manager said. Metrolife.

Customers prefer tips

Frequent diner Aishwarya Narayan, 24, has no trouble paying a service charge if she is happy with the service. “Even when the food was bad, I don’t mind paying the service charge if the service is good. But it is unfair to charge service fees when the customer is unhappy with the service. I was forced to pay service charges in many restaurants where the service was poor,” she says.

A tipping system works better, says Aditya P, a 33-year-old technician. “The concept of service charges does not make sense. Why does a restaurant decide in advance how much to tip? ” he says.

“Cannot be required”

A client cannot be compelled to pay the service fee, says attorney KM Sai Apabharana. Article 2 (42) of the Consumer Protection Act considers this an unfair practice, she said.

“Regardless of whether it is mentioned in the menu or not, the consumer can always refuse to pay the service charge as it is up to them to decide based on their satisfaction. If someone is forced to do so, they can go to the consumer forum and file a complaint against the restaurant,” she says.