89% consumers firmly against levying of forced Service Charge by restaurants

June 3rd, 2022, New Delhi: The Government of India has made it clear that payment of 'service charge' at restaurants is entirely voluntary and at the discretion of consumers. However, many consumers on LocalCircles platform as well National Consumer Helpline (NCH) have been expressing their grievances saying that restaurants are still collecting service charge from consumers by default, for air-conditioner, per se.

LocalCircles since 2017 has been regularly creating awareness on the issue of service charge, raising it for the first time in late 2016, which was then escalated to the Department of Consumer Affairs (DoCA), which comes under the Ministry of Consumer Affairs, Food and Public Distribution. Subsequently, DoCA declared restaurant service charge as an unfair trade practice in 2017. Then the Central Board of Direct Taxes (CBDT) asked the Income Tax Department to examine the Income Tax Department to examine the books of restaurants to see if there is any under-reporting or non-reporting of service charge collected by them.

Finally, a little over past 5 years of demanding removal of forced service charge by restaurants, the consumers may get relief as the Ministry via Central Consumer Protection Authority (CCPA) considers defining Service Charge as illegal and looks to enforce the same.

Per consumers reporting on LocalCircles platform, some restaurants are forcefully adding service charge to the bills of their customers despite the advisories issued by DoCA to make service charge as optional. Per LocalCircles’ survey conducted in May 2018, 39% of consumers had said they didn’t pay service charge at restaurants. To understand the change over time, LocalCircles conducted another survey in May 2022 to track under-reporting or non-reporting of service charge collected by restaurants.

37% consumers who went to an air conditioned restaurant in the last 30 days paid a service charge while 30% did not pay

The question in the survey asked citizens, “When you visited an air-conditioned restaurant in the last 1 month, what was your most common experience with Service Charge?” In response, 7% said “Restaurant charged and we got them to remove”, 23% said “Restaurant did not charge”, and 33% “Can’t say (did not pay attention or didn’t go to a restaurant last month)”. The majority, 37% of consumers who went to an air-conditioned restaurant in the last 30 days said “Restaurant charged and we paid”. This question in the survey received 7,027 responses.

Fewer consumers standing up against forced restaurant Service Charge now as compared to 4 years ago

In a similar survey conducted in May 2017, 27% of consumers said they didn’t pay service charge at restaurants. This percentage saw an increase to 39% in May 2018, and now stands at 30% in May 2022. On an aggregate basis, fewer consumers are standing up against forced restaurant Service Charge as compared to 4 years ago.

Below are some of the additional polls that LocalCircles has conducted on the issue to gather the pulse of the consumers:

79% consumers want restaurant rating sites to allow users to filter or search by “Service Charge Mandatory”

The following question asked consumers, “As suggested by some members, should all restaurant rating sites allow members to filter or search restaurants by ‘service charge mandatory’?” In response, the majority, 79% of consumers want restaurant rating sites to allow users to filter or search by ‘search charge mandatory’. Only 14% said “No”. 7% did not have an opinion. This question received 8,668 responses.

89% consumers want Service Charge at restaurants to be completely removed

The next question asked consumers, “Should service charge at restaurants be completely removed?” In response, the majority, 89% of consumers want service charge at restaurants to be completely removed. Only 9% said “No” and 2% did not have an opinion. This question received 4,525 responses.

61% consumers want Service Charge to be renamed as Service Tip

The following question asked consumers, “Should renaming of Service Charge as Service Tip by hotels and restaurants be done for better understanding of the consumer?” In response, 61% of consumers said “Yes”, and 33% said “No” while 6% did not have an opinion. This question received 5,203 responses.

68% consumers willing to pay a Service Tip/Charge for good service if the money was going to staff

The next question asked consumers, “Will you be willing to pay a service tip or service charge if you were given good service at a restaurant and you knew they money was going to the serving staff?” In response, 68% said “Yes”, and 26% said “No” while 6% did not have an opinion. This question received 5,402 responses.

68% consumers believe restaurant management is keeping a portion of the collected Service Charge

The question in the survey asked consumers, “Per your experience/knowledge is service charge collected by hotels or restaurants being distributed to serving staff or being kept by management?” In response, 42% said it is “Kept by management”, 5% said it is “Shared in full with serving staff”, and 26% said “Some is kept by management and some shared with staff”. 27% did not have an opinion. This question received 5,075 responses.

59% consumers want restaurants to build their Service Cost in price of the food

Another question asked consumers, “Should restaurants build all their service cost also in cost of the food and tip be made the mechanism for above and beyond service?” In response, 59% of consumers want restaurants to build their service cost in price of the food. 37% said “No”, and 4% did not have an opinion. This question received 5,454 responses.

81% consumers believe that Service Charge collected but not paid to staff is leading to generation of Black Money

This question asked consumers, “Do you believe that service charge collected by restaurants but not fully paid to it staff is leading to the generation of black money?” In response, 9% said “No” while the majority, 81% of consumers believe that service charge collected but not paid to staff is leading to generation of black money. 10% did not have an opinion. This question received 10,336 responses.

In summary, 37% of consumers who went to an air-conditioned restaurant in the last 30 days paid a service charge. When it compared the results for 2017, 2018 and 2022, it is clear that the campaign against forced service charge that gathered momentum in 2018 has fizzled away. In May 2017, 27% of consumers did not pay a service charge which went up to 39% in May 2018 and is currently at 30% now. This means that fewer consumers standing up against forced restaurant Service Charge now as compared to 4 years ago. Furthermore, 79% of consumers want restaurant rating sites to allow users to filter or search by “Service Charge Mandatory”. Whereas, 89% of consumers want Service Charge at restaurants to be completely removed. If however it cannot be removed, 61% want it to be renamed as ‘Service Tip’. However, 68% are willing to pay a service tip/charge for good service if they had assurance that money was going to staff. 68% consumers believe restaurant management is keeping a portion of the collected service charge. 59% want restaurants to build their service Cost in price of the food. 81% of consumers believe that Service Charge collected but not paid to staff is leading to generation of Black Money.