There is the challenge of rising inflation, slowing growth, crumbling reforms, collapsing consumer spending, not to mention geopolitical uncertainties, and India’s mighty sarkar is playing mai baap for the consumer, faced with an urgent question: Paying tips. No less than the Union consumer minister, who is working hard to revitalize exports, has called the levying of a service charge on a restaurant bill an act of deception. Officials have held meetings with restaurant associations and called for a “robust framework” to ensure compliance with guidelines prohibiting the collection of service charges by hotels and restaurants. According to the government, charging a fee for anything other than “the prices displayed on the menu card and applicable taxes”, without the “express agreement” of the customer, constitutes “unfair commercial practices”. Such nonsense would be laughable – were it not for the gravity of its implications.
For, it is a throwback to the raj license permit when ill-considered and brutal government interventions marked economic policy-making. Clearly, this attempt to intrude and micro-manage what the government should leave alone continues to be all too common. Representatives of restaurant associations are right to stand their ground. Collecting service fees is neither illegal nor against the law. Restaurants pay GST on the entire bill, including the service charge, so the government doesn’t lose anything. In one form or another, service fees exist in every industry: government transactions have processing fees; food delivery services have “restaurant fees”; ticketing platforms charge a “convenience fee”. The catering sector has been hit by the pandemic – according to the latest GDP estimates, the value added of trade, hotels, transport and communications at the end of 2021-22 is well below its 2019 levels -20. Few would object to a levy intended to help the countless men and women employed in the sector. Moreover, as this is not uniform from one restaurant to another, the presence of alternatives does not imply any restriction of choice – there is no coercion of the consumer. Restaurants clearly state the service charge as such and waive it if the consumer does not wish to pay. Most service charge recoveries go to the staff and are often seen as an inducement instead of tipping.
Of course, the levy of the service charge should be — as it is in most cases — clearly communicated to the consumer. It is unclear what prompted this government intervention, where exactly consumers are being forced to pay kicking and screaming service charges. Official action reflects the arbitrariness with which a dominating state continues to exercise its power in economic matters. Given the challenges facing the economy as it emerges from the long shadow of Covid, North Block’s best financial minds should be working on more pressing issues than how a restaurant tip should be paid – or nope.
This editorial first appeared in the June 8, 2022 print edition under the headline “Service charges, please”.