By A. Stephanie
If there is one thing that is certain in Malaysia today, it is uncertainty. Besides death and taxes (GST 6% included) of course.
First we had taxi drivers, the Land Public Transport Commission (Spad) and the Cabinet in a tiff over higher cab fares. Then the telcos, Malaysian Communications and Multimedia Commission, and the Finance Ministry continually flip-flopped over the imposing of 6% goods and services tax (GST) on prepaid mobile top-ups.
Now questions are abounding with regards to the 10% service charge levied on customers by restaurants and hotels, ostensibly in lieu of tipping: What are the laws governing it? Is it compulsory? Whose pockets does it enter?
Samuel Cheah Swee Hee
On March 10, Malaysian Association of Hotels president Samuel Cheah Swee Hee told Bernama that local hotels will continue to impose both service charge and GST: “For example in SST (sales and service tax), the room rate could be RM100 plus a 10% service charge and 6% service tax with the final amount coming up to RM116.
“But with GST, the rate stays at RM100 and service charge at 10%, bringing it to RM110. GST is then charged on the RM110 and the room rate will finally amount to RM116.60. As such, the guest only needs to pay an additional 60 sen.”
This means that for establishments imposing the service charge, customers would essentially be paying 16.6% on top of the 16% previously, a scant 0.6% increase.
However, Cheah said 50% of the association’s 808 members would only charge the normal hotel rate and GST without the 10% service charge as agreed to when minimum wages were implemented in 2013. These will thus be unaffected by GST implementation.
Ahmad Maslan
With typical Malaysian “selambaness”, little mention was made of this until March 24, a week prior to GST implementation, when Deputy Finance Minister Ahmad Maslan said a proposal had been made to the Domestic Trade, Co-operatives and Consumerism Ministry (KPDNKK) to rename the service charge to restaurant charge or hotel charge to avoid confusion that this too was a government tax.
Some customers were confusing this service charge, which should supplement staff wages, with the previous sales and services tax (SST) of 6% levied on food and beverage (F&B) operators. The latter went to Treasury coffers, and was replaced by the 6% GST once it kicked in April 1.
However, subsequent news reports quoted various restaurant and hotel employees saying that they do not pocket a cent of this service charge, whilst some others depend on this to supplement low wages.
Two days later, Ahmad opined that customers had the right to refuse paying the charge, and instead tip as much as they desired. This mirrors practice in the United States or United Kingdom, where customers can choose to leave tips on top of the final billed amount.
His comment, however, clashed with that of Customs senior assistant director II Maria Madel, who was quoted earlier that day saying customers “should” pay the service charge for the meal serving and table cleaning services they received.
On April 5, the deputy finance minister said once GST is stabilised, several proposals on the levying of this service charge, such as a rate lower than 10% and customers choosing not to pay it if they are unhappy with services rendered.
Alias Ahmad
But KPDNKK was on a tighter deadline apparently. Yesterday its secretary-general Alias Ahmad issued a directive – effective immediately – that only restaurants and hotels with collective agreements with employees can impose service charges. Why just those with collective agreements?
On top of this, restaurants are required to display a notice if they are imposing service charges, and explain the reasoning behind this charge to customers, as it was the latter’s right to decide not to pay it and there is no prescribed rate for the charge.
Alias also told Bernama a working group had been formed comprising KPDNKK and the Finance and Human Resources Ministries to work with the unions and hotels associations to review the issue.
“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, hence the directive,” he remarked.
This directive apparently was not sufficient to quell fears, as both Federation of Malaysian Consumers Associations (Fomca) and Muslim Consumers Association of Malaysia (PPIM) continued to press for service charge to be scrapped entirely.
While PPIM noted that the directive would be open to abuse without clear implementation, Fomca CEO Paul Selvaraj suggested the government apply a one-price policy where all the overhead and cost of businesses for hotels and restaurant should go into the price of products.
And Malaysians, being Malaysians, have crowdsourced information on establishments that incur the service charge, whilst the various ministries and consumers and business associations duke it out.
Just as mobile apps and websites cropped up to inform drivers exactly where speed traps are located when Automated Enforcement System (AES) cameras kicked in in 2012, creative netizens are contributing to a website, http://check-service-charge.herokuapp.com, which lists restaurants in the Klang Valley that charge GST and service charge, either, or none at all.
God bless Malaysians.
But really since there is no law governing the imposition of this service charge nor its rates, how much should KPDNKK police? After all, the government stands to gain 6% from establishments that choose to impose it. At the same time, calls to scrap service charges speak to the Malaysian culture that just refuses to pay extra on anything.
In the US and UK, stories have been rife of customers who not only refuse to tip, but also leave negative comments for their servers. At the other end of the spectrum, massive tips have been known to be given, to the tune of 30% of the bill.
By scrapping service charges, both governments have indeed made the customer king. Note however, that minimum wages are constantly under review in both countries whereas Malaysia only recently instituted it.
Many frontline staff in the hospitality sector depend largely on tips and extra wages during the peak seasons to supplement their minimum wage incomes.
Clearly, ensuring even the single directive is followed will require many enforcement officers. Collective agreements can be made, and they can be broken too. And negotiations with industry players will take time – who knows how many hotel associations and unions are there or which restaurants keep employees in the loop.
Are we going to see flocks of KPDNKK enforcement officers descending on eateries together with their Customs counterparts? Will we have local-authority-type rulings about how large the signs declaring the imposition of service charges have to be? Where they have to be located and such?
Or are we going to wait till more uncertainty builds up before rulings are put in place? Even then, this being Malaysia, the announcement of a ruling has almost no correlation with its implementation.
Perhaps the easiest thing is to just scrap the service charge and put costs into the price of the food itself. That solves a number of problems, including whether the charge goes to service employees or the establishment.
That’s one simple way to avoid the devil, which as always, is in the details. But then we are not known for adopting simple solutions.
GRRRRR!!!
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