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What is service charge?

Unlike the Sales and Services Tax (SST), which was replaced by Goods and Services Tax (GST) this year, service charge is an additional rate usually implemented by service providers towards consumers for the service delivered. It is not compulsory and is separate from any tax imposed by the government.

What are the rates like?

Service providers in the hospitality industry (restaurants and hotels) are allowed to charge a 5 – 10% rate of the total bill for service charge. It is not fixed and is up to the businesses to determine which rates they want to imposed. After which GST is then calculated onto the overall amount, arriving at the final price you have to pay for the service.

Why has there been confusion over service charge recently?

With the implementation of GST on 1 April 2015, many consumers have taken to scrutinizing their bills more thoroughly. This had led to service charge being commonly mistaken for service tax.

However, service tax is not service charge. Service tax is a form of indirect tax imposed by the Malaysian government on taxable persons for specified “taxable services” under the Service Tax Act 1975 [Act 151]. Service charge is essentially tips for the employees.

But restaurants are already more expensive because of GST!

Some places still implement service charge as it contributes a substantial amount to the total salary of an employee. In Malaysia where the tipping culture is not widespread, service charge is meant to supplement the low income of employees as well as to encourage better service so that the establishments will garner better businesses. The amount collected under service charge will theoretically then be shared among all employees at the end of the month.

What have businesses been doing to clear the confusion?

Many establishments to put up printed notices informing consumers of the additional charges asides from GST. Some however, have garnered less than enthusiastic responses from the public. It should be noted that there are also times when the money collected under service charge is not distributed to the employees. Instead, the employers are the ones who pocket it.

So do we have to pay service charge or not?

Deputy Finance Minister Datuk Ahmad Maslan has been quoted as saying consumers need not pay the service charge if they’re unsatisfied with the service provide. However, the chairman of Umno Youth’s Economy and Entrepreneurial Development Bureau (BEPU), Azlan Abdullah has been quoted as saying “While it is true that ‘service charge’ is not a tax collected by the government under the current Goods and Services Tax Act 2014, it does not mean that one can choose not to pay service charge imposed by restaurants and hotels.

Azlan Abdullah’s statement was echoed by restaurateur Ed Soo in a Facebook post. The imposition of the service charge is stated in the menu. In other words, it is a contractual arrangement between the restaurant and the customer. The customer cannot choose not to pay the service charge, as suggested by Deputy Finance Minister Datuk Ahmad Maslan. If they are not happy with the service, they can choose not to patronize the restaurant,” he says.

What else has been said about service charge?

Effective 6 April 2015, service charge may only be imposed if there was a collective agreement (CA) between the employer and the employees said Domestic Trade, Cooperative and Consumerism Ministry secretary-general Datuk Seri Alias Ahmad.
A service charge certificate will also be issued to restaurants and hotels by the Domestic Trade, Cooperative and Consumerism Ministry soon.

Lyn Ong

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