Viewpoints

Contradictheory

Sunday, 26 April 2015

Ten percent for my thoughts

To pay or not to pay? Customers are now standing up for their rights and refuse to fork out the service charge at restaurants.

I FREQUENTLY write this column while nursing a glass of teh tarik at a local restaurant. Recently, I noticed something new posted up next to the counter: “We are currently in discussion with the Domestic Trade, Cooperative and Consumerism Ministry on the implementation of the service charge. In the meantime, customers are expected to pay the 10% service charge.”

This, of course, is in direct contradiction of what Deputy Finance Minister Datuk Ahmad Maslan said during a press conference in late February: “I want to inform that you don’t have to pay the 10% service charge if their service is not good.” Given that, normally, the public doesn’t take what politicians say seriously, we should be heartened to see the public so keenly embrace the deputy minister’s stance.

Galvanised by this call to only reward good service, customers now are standing up for their rights and refusing to pay the 10% service charge. “Your service not good mah, why should I pay?” is the new battle cry.

The restaurants’ efforts to enforce payment with signs saying otherwise have not stemmed the tide. Customers still insist, and polite requests to not pay have escalated to stern voices, resulting in ultimatums like “You want to call the police, you call lah!” If one day these threats are carried out, the already overworked officers of our Royal Malaysian Police will need to take time off from crime scenes to resolve disputes over a few ringgit, plus 6% GST.

How did we get to this point? My understanding is that the eagle-eyed Malaysian public first noticed that an infographic showed that not only did you have to pay GST on the food, you had to also pay it on the service tax. Clearly, it’s preposterous for the Government to start taxing the tax.

Except, the government pointed out it’s not a “service tax” to the government but a “service charge” whose profits go to the company. As a result, it will attract GST. It’s even there at the top of page 79 of the “Guide On Tax Invoice And Records Keeping” that was released by the Royal Malaysian Customs Department last July.

Perhaps they also anticipated a complaint that the 10% service charge previously was not subject to the Sales and Services Tax (SST), but now, people have to pay extra. However, if there is no need to pay the service charge anyway in the first place, then the customer wins!

With this announcement, the government turned what was seen as a profit-sharing system into an incentive system that the customer controls. These are two very different models, with the latter resembling a system of tipping – and it’s not necessarily better.

In an article in the Cornell Hotel And Restaurant Administration Quarterly, a researcher found that “service ratings explained an average of less than two percent of the variation in a restaurant’s tip percentages”. In other words, better service meant only slightly better tips.

If not better service, then what gives better tips? Since tips are usually a percentage of the total bill, the best way to increase tips is to increase sales. You can either do this by “upselling” (persuading the customer to buy that bowl of soup he didn’t know he wanted) or by making customers eat faster in a busy restaurant (because then the table becomes free for another customer to come in). I’m not sure customers really want to be pushed to buy more, or rushed to finish their food, but in both cases, it can increase tips without necessarily improving service.

People are also more likely to tip friendlier staff. In this instance, anything from a genuine smile to a drawing of a smiley face on the bill can make a difference. One study found that waitresses who wore flowers in their hair increased their tips by 17%.

And being attractive really helps. Another study in the United States found that waitresses’ tips “increased with breast size and with having blond hair, but decreased with body size”. As much as I would love to be well-attended to by buxom, blonde, slim waitresses, I do worry about the potential for discrimination.

Discrimination seems to be even more deep-rooted than you might expect. In the United States, black service staff are tipped more poorly than whites. And the problem is complex even for customers. Black customers on average tip less. Waiters know this, and give poorer service as a result.

On top of everything else, tips represent undeclared income and present an opportunity for abuse. There is a positive correlation between how much tipping you see in a country, and how much corruption there is.

In fact, how exactly restaurants here use the 10% service charge is unclear. One would think it should be recorded as income, and then split to the staff as bonuses alongside their wage; but the truth is that the restaurant can do whatever it likes with it.

I think the solution to the problem is obvious: Eliminate the service charge, and incorporate any additional costs in menu prices. Let the employee contract reflect profit-sharing, if any. And attract more people to eat at your restaurant by advertising, “No service charge fee here!”

Logic is the antithesis of emotion but mathematician-turned-scriptwriter Dzof Azmi’s theory is that people need both to make sense of life’s vagaries and contradictions. Speak to him at star2@thestar.com.my.

Tags / Keywords: Contradictheory , service charge , GST , tips

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