Waiver of ten percent service charge less likely to bring down price

Published On: January 30, 2023 09:35 AM NPT By: Santosh Pokharel

'Menu' price to increase making food ‘not so’ affordable

POKHARA, Jan 30: The Supreme Court ruled last Wednesday that hotels and restaurants cannot collect 10 percent service charge from customers. After this decision, consumers are hoping that it will be cheaper to go to hotels, restaurants and take any service at an affordable rate. However, it is not likely to be cheaper as expected by consumers.

On one hand, workers working in the tourism sector do not seem to be willing to give up the service charge they have been receiving. On the other hand, the businessmen will not be ready to pay extra money to the workers by putting more financial burden on themselves. Businessmen say that due to this, the price on ‘menu’ will not decrease. Instead, the businessman says that the price will be adjusted even if the 10 percent amount is not added to the customers’ bill.

Until now, customers had to pay an additional service charge of 10 percent on the price for availing the service. On top of that, consumers also have to pay an additional 13 percent VAT. As a result, an additional amount of 24 percent used to be added to the consumers’ bill. After the order of the Supreme Court, the consumers have to pay only 13 percent tax, but the workers do not want to leave the service facility that they have been enjoying so far and the businessmen do not want to add more financial burden on themselves. The businessmen say that there is no situation to reduce the fee.

“Consumers psychologically understand that they have benefited if they do not see the 10 percent service charge on the bill. But, in reality, they are not benefited,'' says a restaurant owner in Lakeside Pokhara.

"Superficially, it looks like it will be cheaper if you don't have to pay a 10 percent service fee, but because the businessmen don't want to bear the financial burden and the workers don't want to cut the service facilities that they have been getting, this does not seem to give immediate benefits to the consumers.”

According to him, the workers have been working for a meager salary because they would get money from the service charge. However, if the service fee amount is not received, the workers cannot have an environment to work. At that time, businessmen will be forced to increase the wages of the workers. However, businessmen do not want to add financial burden on themselves as the business has been in loss for three years due to COVID-19.

“The tourism sector has been in loss for three years. At present, the businessmen are not in a position to add more financial burden when we are struggling to meet the expenses,” he said, “Therefore, the businessmen will take measures to make up for the loss even by increasing the price of the menu,” said the restaurant owner requesting anonymity.

According to him, since the order of the Supreme Court must be obeyed, a 10 percent service fee cannot be charged from the customer. As a result, in the event of a loss, the workers and the management will now have to proceed with mutual agreement, he said. 

"Taking service charge will be against the court's decision," he said, "Either the amount equal to the service fee will have to be added to the salary. Otherwise the menu price will have to be increased as the price of the menu is set by the businessmen themselves.”

Gopi Bahadur Bhattarai, former president of Restaurant and Bar Association Nepal (REBAN) Pokhara, also said that if the service facility is stopped, there will be a conflict. He added that the price will not appear on the bill but will be adjusted in the menu.

“Consumers don't seem to be able to experience cheaper services. If the businessmen are not ready to bear the loss, the price will not be cheaper," he said, “Extra money cannot be charged, but no one can stop them from fixing the price. Businessmen will adapt accordingly.”

He said that the discontinuation of the perk would lead to disputes with the workers.

"It is not easy to reconcile with the workers. At present, businessmen are not in a position to bear the loss and increase the service facilities of the workers.”

He said that some funds have been set aside for backup and operational leakage as there is a loss during the service delivery, the dishes break, and the workers keep changing.

Another restaurateur, Surya Bhujel, also says that if the 10 percent service charge is removed, the workers will not accept it. "The businessmen themselves will not be ready to bear the extra burden from their regular earnings when they are operating at a loss," he said, “There is no alternative for workers and businessmen but to move forward together.”

According to the Labor Act 2074 Section 87 (3), until now the tourism sector has been charging 10 percent from consumers. Out of the amount raised for service charges, 71 percent was distributed to the workers equally, while 24 percent of the amount was allocated to employers for breakage and operational leakage management. Out of the remaining 5 percent, 2.5 percent was received by employers' organizations and 2.5 percent by trade unions in the hotel sector. Service charges from consumers were the main source of income for trade unions and hotel owners' organizations. Apart from the regular earnings, some businessmen were reluctant to remove this provision as additional income would also come from the 10 percent service fee.

Earlier, the tourism sector was collecting this amount from consumers due to the labor movement. Big hotels and restaurants started paying service charges to workers only from 2009 even though there was an agreement to levy service charges in the tourism sector in 2006. Until now, the tourism sector was collecting this amount from consumers due to the labor movement. 

Manmohan Gayak, Central Vice President of Nepal Independent Hotel, Casino and Restaurant Workers Union, says that they will be forced to protest if service fee isn’t received. “If the service fee is not charged, the workers will leave the job. So far, we have only received the minimum wage," he said, “Either the salary should be increased, or the service fee should be raised.Other government agencies also have service charges."

He said that the laborers who are affected by inflation will suffer even more if they don't get the service fee. He said that the amount was taken according to the Labor Act and regulations. "If the income decreases, the workers will be ready to quit work and leave for the Gulf countries, they will not work here." 

Gayak said that if the businessmen cannot bear the loss, they will increase the price now. “Now the price of the menu will increase. It is sure to affect consumers. Because the businessmen are not ready to bear the loss. The possibility of doing business without making a bill has thus increased," he said.




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