Mostly upmarket restaurants collecting service charge

The government is now taking steps to stop them from calling tips ‘service charge’ on the bill

The government is framing a new set of rules to stop restaurants from billing customers a service charge.

Last week, Consumer Affairs Minister Piyush Goyal said restaurants would not be allowed to levy a service charge and collect it mandatorily. The government deems it an “unfair trade practice”. Many restaurants refer to tips as a service charge and collect a set percentage mandatorily. Conventionally, tips are given voluntarily by customers in appreciation of good service, and are rarely an exact percentage of the bill.

Restaurant owners in Bengaluru are concerned about the government’s move. “Our stand on this has been the same since 2017. Levying service charges is not an unfair trade practice. You can’t term something illegal or unfair when it is a norm globally,” says Mukesh Tolani, head of the Bengaluru chapter, National Restaurants Association of India (NRAI).

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

Only 10-15% of the restaurants in the city levy service charges, and most are fine dine, according to Bruhat Bangalore Hotels Association. “Many 5-star hotels in the city like the Taj chain no longer levy service charges since the past five years,” says P C Rao, president of the association. The association welcomes the decision to remove service charge. “If the government passes a law against mandatorily collecting a service charge, we have no problem,” he adds.

Government departments are working at cross purposes, says Amit Ahuja, owner, AA Hospitality. “While one department terms the collection of service charge as an unfair practice, another wants to collect GST on it. Service charge accumulated by the restaurant is taxable. We all pay GST on it,” he tells Metrolife.

He believes when diners skip the service charge, those impacted are the waiters, chefs and the general staff. “We divide the service charge among all the staff based on a points system, and this way every single employee gets a share,” adds Ahuja.

Kiran Reddy, owner, Wanderers Pub, Kalyan Nagar, started levying a service charge in December 2021. “The pandemic badly impacted the industry and we had no other option. Also, the staff believed a service charge needed to be levied, as we were probably the only pub that was not collecting it,” he says.

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

‘Prices will go up’

Nikhil Gupta, owner, The Pizza Bakery and Paris Panini, believes removing the service charge will have a ripple effect and end up hurting the consumers. If the service charge is taken off, restaurants in the city “will have no other option but to increase the prices”, he believes. “On the menu, we charge for the food and beverage as a product. If you’re dining at the restaurant it is only fair that you pay for the service too,” he adds.

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

Incentives matter

Tenzin, a waiter at a restaurant on Church Street, says incentives play a big role. “It is only right that customers pay for the service they receive. It could either be in the form of tips or service charge,” says the 27-year-old.

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

Customers prefer tipping

Frequent diner Aishwarya Narayan, 24, has no trouble paying a service charge if she is happy with the service. “Even in instances where the food was bad, I don’t mind paying the service charge if the service is good. But it is unfair to collect a service charge when the customer is not happy with the service. I have been coerced into paying a service charge at many restaurants where the service was bad,” she says.

A tipping system works better, believes Aditya P, a 33-year-old techie. “The concept of a service charge does not make sense. Why is a restaurant pre-deciding how much I should tip?” he says.

‘Can’t be mandatory’

A customer cannot be forced to pay the service charge, says K M Sai Apabharana, advocate. Section 2 (42) of the Consumer Protection Act deems it an unfair practice, she says.

“Irrespective of whether it is mentioned in the menu or not, the consumer can always refuse to pay the service charge as the discretion lies with them on the basis of their satisfaction. If anyone is coerced into doing so they can approach the consumer forum and file a complaint against the restaurant,” she says.