LAST_UPDATESun, 27 May 2018 11am

I Already Pay GST, Why Do I Need To Pay Service Charges?

Confused by service charges, the previous sales and service tax and now the GST? You’re not alone. Many Malaysians had naively assumed that when GST came into force, the 10% service charge will automatically disappear from our receipt.

Back then before the GST implementation we are used to see prices on the menu board; “6 percent of government tax excluded.” When we make payment, on the receipt we can see the 6 percent government tax with service charge, and we were not really bothered by it.

Now, after the implementation of the Goods and Service Tax (GST) it is compulsory for traders to display the price with the 6 percent GST. However when we want to make payment we discover we still need to pay another 10 percent of service charge!

So what is this service charge all about?

It definitely doesn’t help when we get confusing signals from the authorities too. In March, Deputy Finance Minister Datuk Ahmad Maslan had publicly stated the contrary.

"The 10% service charge imposed by hotels and restaurants need not be paid after the goods and services tax (GST) is implemented," the minister had publicly declared.

But the reality as most Malaysians found out is not only does the 10% service charge stay, GST is charged on the service charge amount as well in many cases!

Last week, as highlighted by Malaysian Digest, a Chinese restaurant in Bangsar Shopping Centre had placed a notice in front of the restaurant informing customers that there is a 6 percent GST on top of the 10 percent service charge and anyone not willing to pay that should not dine there. You can read the previous story on this link [More Heat On GST As Restaurant Refuses To Attend To Customers Who Don't Pay Service Charge] .

The Secretary-General of the Ministry of Domestic Trade, Cooperative and Consumerism (KPDNKK) Datuk Seri Alias Ahmad had issued a public statement on the matter early this month

“It is the right of customers to decide not to pay service charges and there are no prescribed service charge rates,” he had stated publicly.

He clarified that restaurants and hotels without a collective agreement between employers and employees are not allowed to impose service charges.

So we are back to square one. Can Malaysians hope for a resolution to this form of hidden taxation?

Can You Choose Not To Pay Service Charges?

As publicly stated by Ahmad Maslan if the individual is not happy with the service provided, he or she can choose not to pay for the service.

Can we do that? To get some answers, we contacted FOMCA Secretary General Datuk Paul Selvaraj [pic].

Photo: Astro AwaniPhoto: Astro AwaniPaul disagrees with the service charge imposed on to consumers and said that it should be abolished altogether, unless there is a collective agreement which stipulate how it is going to be spent.

He suggests that hotel and food operators should consider a single pricing policy which means whatever the price that is on display should be the same in the receipt.

“We think we should quote some policy of single pricing. What you read on the menu should be on the bill. There shouldn’t be any other charges.

Paul also agrees that if customers are not happy with the service they can choose not to pay the charge. He says: “If the service charge reflects the service, the customer should have the discretion of how much they want to pay.

“Because if you are not happy with the service why do you want to pay for it? The owner is making it mandatory because they are assuming that their customers are happy with the service.”

From the consumers point of view if they are not happy with the service they can choose not to pay the service charge. But will the operator comply? I seriously doubt that.

“You can refuse to pay but they can sue you for not paying and you need a lawyer to fight back.

“Your food bill came to RM40 but you will need RM4, 000 for your legal fees.

“Although the minister says we shouldn’t pay, the quote is wrong by itself. This has to be addressed from the regular treatment (paying service charge) point of view rather than the individual consumer point of view.

“Once the government has made a ruling or policy about this matter then it becomes the government enforcement. That is what consumers protection by the law is about.

“It’s not about you refusing to pay the bill. This will create a lot of conflict and take up to the extreme it involves court action and that is not what we want. We want it to be solved through the regular trade system,” Paul says.

He also found the practice of some f&b outlets putting up notices asking customers not to dine there if they do not agree to pay the service charge as unethical and rude.

He also highlighted the fact that there is no agency that regulates service charges payments.

“The service charge is not regulated by any agency. If there is no legal agreement, it is completely up to the owner to use it as he sees fit. We don’t think there should be two charges; one for the food, the other for the service.

Local Government Enforcement Of Service Charges Could Be The Answer

KPDNKK’s Alias had also verified that no governmental agency oversees the service charge.

“To date, there is no regulatory body or special ruling governing the collection of service charges thus the government is facing constraints in resolving the issue.” he stated in early April adding that he was issuing a directive on the matter effective April 6, according to Bernama.

In the event of any breach of the directive, consumers are required to report to the KPDNKK and the complaint will be investigated, he said.

Alias said a working group had been formed comprising KPDNKK, the Ministry of Finance and the Ministry of Human Resources and was working with the unions and associations of hotels to examine and review the issue.

The government is mulling prohibiting the imposition of the service charges altogether on the grounds that many businesses seem to be able to do well without it.

Photo: greatermalaysia.comPhoto: greatermalaysia.comDomestic Trade, Cooperative and Consumerism Minister Datuk Seri Hasan Malek was quoted as saying that the government is looking for a way to abolish the 10 percent service charge.

A way of enforcing the directive can be through the issuance of business licences. If the outlet has no proper business licence, it has no business charging service charges too. Linking the issuance of business licences to employers having a Collective Agreement signed with staff prominently displayed at their premises. However, some local authority bylaws might need to be amended to accommodate this enforcement, as reported by Bernama yesterday.

In the meantime, KPDNKK is continuing with its nationwide checks on outlets which impose the Service Charge. 782 hotels and restaurants have been inspected through 412 complaints received and 88 premises issued notices under Section 21 of the Price Control and Anti-Profiteering Act 2011 as of yesterday.

“The operation commenced on April 8 and, based on the complaints received, we will investigate to determine if there is profiteering.

“Traders are given three days to submit invoices and the related documents before enforcement action is taken,” he told reporters as reported by Bernama yesterday.

Is Tipping A Better Option?

While the critics of service charges from the ministry and members of the public have been very vocal, what about the supposed benefactor of service charges - the service employee?

The Malaysian Association of Hotel said that service charge was a universal practice and had been applied in Malaysia for decades without any problems.

“It is very unfortunate that Deputy Finance Minister Datuk Ahmad Maslan’s recent statement on the matter has confused consumers into thinking that the charge is a kind of tax to the Government,” association president Cheah Swee Hee said in a Bernama report recently.

He added that since 1975, the service tax was imposed by the Government through the legislation of Sales and Service Tax (SST) Act.

“Subsequently, the government tax portion was increased to 6% and on April 1, the SST was replaced with the Goods and Services Tax (GST),” he said.

Some NGOs and political groups have also chipped in on the debate.

According the TheEdgeMarkets, PKR vice-president had publicly stated that the party supports the service charge imposed on customers and will not call for its removal as its goes towards workers' incomes.

"We have no plans to call for its reduction or removal because the service charge is part of workers' income.

"We recognise the service charge belongs to workers in the services sector and we call on all quarters to respect it," he said.

The state chapter of the Malaysian Association of Hotels (MAH) said the industry here will face a manpower shortage if the government abolishes the 10 per cent service charge.

But the government is not the only one thinking about abolishing the service charge; many consumers have called for it and suggested that tipping be an option.

However, National Consumer Complaints Centre Board of Trustees part Muhammad Sha'ani Abdullah said he favours the service charge over tipping, as the previous is more proficient and methodical. He says the tipping culture may bring about workers just deciding to serve customers who, they felt, would have the capacity to give tips.

Not only that, he says tipping can be seen as unfair because those at the front line are rewarded.

“What about the workers at the back of the restaurant, like the cooks, dishwashers and others? They, too, contribute to the service but don’t get the chance to receive tips,” he says to BERNAMA.

Malaysian Consumer Protection Society President Datuk Mohd Firdaus Abdullah feels the service charge should be annulled, saying that food and hotel services costs are already high at this point.

He said it was unreasonable for consumers to be compelled to "pay additional wages" to hotels and restaurants through the service charge, all in light of the fact that their employers are reluctant to pay them higher or provide more incentives.

He said if the service charge is retained, the government could make a win-win circumstance by setting the service charge for F&B outlets and hotels at a rate acceptable to consumers.

“Right now we have reached the point where we need to create a solution that could benefit us all, consumers and operators.

“If the government decides to retain the service charge, then they ought to set a new rate rather than keep on imposing the 10 percent on consumers. However if tipping policy is preferred, employers need to make sure that their staff do not look for the ‘big fish’ only.” he concluded.



-Malaysian Digest