That 10 + 5 that you pay

I realised a lot of people are actually quite confused about that additional “++” that you pay when you eat at a restaurant. The general understanding is that they are “govt tax”. But do you really know what exactly it is that you are paying for? Allow me to enlighten you.

The “++” is made up of 2 components.

The first component is “service charge”, usually at 10%. This is NOT a tax. In fact, there is actually no law to say that you must pay this amount. This additional 10% is what the restaurants charge you for the service you receive, namely; taking of your order, laying the towel on your lap, replenishing your water, recommending dishes to you, making you stand on the chair as the birthday song is sung to you, etc.

One should ask, does the additional 10% that you pay match the service that you receive? How many times have we been served by foreign waiters who have no idea of the dishes being served? Some can hardly pronounce the dishes in the menu.

There was once I was at this quite up-class restaurant and we asked the waiter whether this particular dish has got cheese, she just stared blankly at us. When we repeated our questions, her reply was … “I from Myanmar”. This is quite an up-class restaurant which charged us 10% of the bill for such service.

In effect, this 10% is to cover the restaurants’ labour cost in employing waiters to serve you. But you and I know that these labour costs have already been factored into the price of the dishes. Top that up with the I-from-Myanmar type of service, this 10% can be quite a rip-off. But then again, we are rich Malaysians who make a lot of money and since it’s for food, we just pay without asking.

The second component is “service tax”, at 5%. This IS tax. You are legally obligated to pay this under the Service Tax Act, 1975. And here is something you should know…

Previously, restaurants located outside hotels with an annual turnover (i.e. revenue, not profit) of RM300,000 are required to be licensed and collect this 5% service tax from their customers. Effective 1 July 2008, the threshold of RM300,000 was increased to RM3m. [Source: Service Tax (Amendments) Regulations 2008 – PU(A) 216/2008]

This effectively means for restaurants located outside hotel, only those with an annual turnover of RM3m should be charging service tax. So what if you happened to eat at a restaurant which you don’t think is making RM3m in turnover per annum and you are made to pay this 5% service tax?

Well, chances are this restaurant was licensed under the old rule (i.e. RM300,000 threshold) and lazy to go to the Customs and revoke its service tax licence. Since the people paying the additional 5% are you and me, these business people just couldn’t be bothered.

But all if not lost as you can put in a complain at the Customs if you seriously think a particular restaurant not making RM3m a year is charging 5% service tax. One thing though, don’t judge a restaurant by its set up. There are some very old looking coffee shops making millions every year.

And remember, you can only make a complaint if it’s service tax and not service charge. I hope you all have an idea on what’s the difference by now.