10% service charge is not govt tax

Collectible: A restaurant in Gurney Plaza, George Town, displaying the service charge.

The 10% service charge imposed by hotels and restaurants will stay when the Sales and Service Tax (SST) returns to replace the Goods and Services Tax (GST) on Sept 1.

The Malaysian Association of Hotels president Cheah Swee Hee said the service charge is not to be confused with SST, which has a 10% tax on sale of goods and 6% tax on provision of services (the same rate as pre-GST times).

“The SST is a government tax while the service charge is distributed among the service crew of the hotel,” he said.

Cheah said the service charge is collected by hotels with unionised employees.

About 30% of hotels nationwide include the service charge in their bills – a common practice in Malaysia for years, he explained.

“The rest of the hotels implement clean wage system to meet the minimum wage requirement,” he said.

Adding that he did not foresee SST affecting their business, Cheah said the hotels just need to re-programme their payment systems to implement SST.

The Customs Department website states that the service charge is a charge over and above the cost of goods or services imposed by businesses in a bill.

This is normally applied in the hospitality industry and the normal rate is 10%, in place of a tip system. The sum is pooled into a fund to be paid to workers in an establishment.

Industry players say it is standard practice to retain a certain percentage of the service charge collected to cover breakages and staff events, while the majority goes back to the staff.

After GST was rolled out in April 2015, the then Domestic Trade, Co-operatives and Consumerism Ministry said restaurants and hotels were only allowed to impose service charge if they had an employer-employee collective agreement in place, and a notice on the charge must be put up.

An owner of a popular chain of restaurants in the Klang Valley said the service charge is not related to the services tax component of the SST.

“This means we can still impose the service charge after the SST is introduced,” he said.

Under the previous SST regime, the Government only imposed a 6% service tax on businesses which made more than RM450,000 per year.

“We are waiting for more details in order to figure out how prices will be affected by the reintroduction of SST,” he said.

Several restaurants in Penang said service charge is here to stay as the collection is for the benefit of the workers.

The manager of Foong Wei Heong Restaurant, who wanted to be known only as Ooi, said a 5% service charge is imposed for the provision of services, including cooking and serving.

“The service charge is also a form of motivation for the employees who do not earn much,” he said at the restaurant in Jalan Sri Bahari yesterday.

Ooi is worried that when SST is re-introduced, many might take the opportunity to increase prices again, and he hoped the Government will take the necessary precaution to prevent that.

“GST is actually a good system if done the right way as the traders can claim for a refund when buying raw materials and other inputs for their business,” he said.

Jade Palace Seafood Restaurant managing director Edmund Leong said the eatery will also retain its service charge of 5%.

He also did not think the return of SST would have much impact on the industry. -Star