Skip to main content

Can restaurant owner/hotelier charge service charge and vat per Nepalese law?

I saw there is a lot of confusion and misconception around what a restaurant can charge. Many people are complaining over social media that restaurant owners are still charging Service Charge and VAT to them despite recent ruling from the Court. Let us clear the confusion today.

Well, this story came into limelight because of journalist Madan Dhungana who filed the case in Kathmandu District Court against Green Valley Resort. In this case, Green Valley Resort had issued an invoice that was above the menu price. 

Let's take an example to under what might have happened.  Restaurant had listed coffee as Rs. 200 on its menu, customer ordered it understanding it will cost him/her Rs. 200 but when S/he was given the bill at the time of payment, S/he saw that additional 10% Service Charge was levied followed by 13% VAT as applicable per VAT Act. Customer now ended up paying Rs. 248.60, Rs. 48.60 more than the listed menu price which court deemed as a cheating and not fair to consumer. S/he might have made different choice in terms of item to order or even a restaurant, had s/he know what will be the final price.


Here's the breakdown of the Rs. 248.60 for your refernce:

Coffee Price:                                                     Rs. 200

Service charge @ 10%                                       Rs. 20

Total Taxable Amount                                      Rs. 220

VAT @ 13%                                                  Rs 28.60

Total Invoice to be paid by customer         Rs.248.60

So what's the punishment for this act?

According to the decision made by the Kathmandu District Court, such restaurant owner/hotelier can be fined from Rs. 200000 to Rs 250,000 and jailed from 3 months to 6 months.

So, what does restaurant owner/hotelier need to do?

They have two option:

1) Adjust the menu to include both service charge and VAT.

2) Properly disclose on the menu that additional 10% service charge and 13% VAT will be levied on the menu price.

One thing we need to understand here is that service charge is not a new thing. Hoteliers have been levying it since 2007. It came into effect following the decision of Hotel Association of Nepal (HAN) and right now the 10% collected service gets divided among 6 different stakeholders as follows:

72% goes to workers

23% goes to hoteliers

2% goes to HAN

1% goes to Nepal Independent Hotel, Casino &  Restaurant Workers’ Union, 

1% goes to All Nepal Hotel, Casino and Restaurant Workers’ Union, and 

final 1% goes to Nepal Tourism and Hotel Laborers Association

Latest bifurcation is per agreement between trade union and HAN on June 4, 2018.

Plz note that Supreme Cout had made a decision on 2079/10/19 that service charges can no longer be levied as it is against the spirit of Nepal's constitution Article 44 and 115(1). Thereby, Labor Act 2075 Section 87(3) and Labor Rule 2075, Rule 82 is null and void from the verdict date.

Here's the decision of the court.

आतिथ्य सेवासहितको वस्तु सेवा उपलब्ध गराउने होटल, मोटल, रेस्टुराँ, जंगल सफारी वा अन्य व्यवसाय गर्ने व्यक्तिले उपलब्ध गराउने वस्तु वा सेवामा लागत एवं मुनाफा जोडी आफैंबाट बिक्री मूल्य कायम गरिएको हुन्छ । आफ्नो लागत र त्यसमा आफूले पाउनुपर्ने मुनाफा लिइसकेपछि सेवा शुल्कका नाममा रकम जोडी लिने कार्य अनुचित हो । थप शुल्क लिने अधिकार व्यवसायीलाई हुन सक्दैन । यो उपभोक्ताउपर करकापमा महँगीको भार थप गर्ने कार्य हो । यो कार्य अन्यायिक समृद्धि हुन जान्छ ।

Let's wait and watch it being implemented. 

As an informed citizen, we should no longer accept invoices from hotels and restaurants that includes any service charge. In fact, report it to Tax Office and Department of Commerce, Supplies and Consumer Protection.


Comments

Most Viewed

What is Nepal Standard Industrial Classification (NSIC Code)? Brief Explanation

NSIC (Nepal Standard Industrial Classification) Code is an economic classification of the economic activities that happen within the territory of Nepal. It has four digits representing different economic transactors bringing in consistency in collection and reporting of the economic data. It is mainly helpful for the economic data analysis hence, the economists, researchers and the policy makers including government will benefit from it. NSIC Code is formulated in accordance with ISIC (International Standard Industrial Classification) bringing in homogeneity and comparability of economic data with the world who has adopted ISIC framework. To localize the codes, guidance has been followed as prescribed by System of National Account, SNA – 1993 and International Standard Classification of Occupation, ISCO – 88. NSIC Code has defined Nepalese economic and institutional sector in three categories, mainly, to define the principal activities of the producing agents within Nepales...

Nepalese VAT Act: Understanding VAT Claims for Food Expenses in Business

Introduction: Determining whether a business can claim VAT against food expenses depends on the nature and purpose of the expenditure. Let's walk through a checklist to find the answer: 1) Was it a Business Expense?      If yes, proceed to question 2. Otherwise, VAT cannot be claimed. 2) Was it for Entertainment Purposes?      If yes (e.g., staff retreat, gatherings, farewells), VAT cannot be claimed. Otherwise, it may be eligible. VAT Act and Regulations: Rule 41 of VAT Regulation specifies that certain services or goods are not eligible for input tax credit under Sec 17 of the Nepalese Income Tax Act. These include: 1) Beverages (excluding mineral water, as clarified in the directive) 2) Alcohol or alcohol-based beverages like whiskey and beer 3) Petrol for vehicles 4) Entertainment expenses In the case of food expenses, it's crucial to determine whether they fall under the category of entertainment expenses. This encompasses activities that provide perso...

Fees, Fines and Penalties under Nepalese Companies Act, 2063, Amended 2074

We normally get a lot of question in different forums on what is the registration fee of Company in Nepal and what are the various penalties imposed for non-compliance. Here's what we have compiled for you. Please get back to us on comments if you have any additional query. 1.          Fees during company registration a.        Private Limited Company S.N Authorized Capital Fee (In NRs.) 1 Up to Rs. 100,000 1,000 2 From 100,001 to 500,000 4,500 3 From 500,001 to 25,00,000 9,500 4 From 25,00,001 to 1,00,00,000 16,000 5 From 1,00,00,001 to 2,00,00,000 19,000 6 From 2,00,00,001 to 3,00,00,000 22,000 7 From 3,00,00,001 to 4,00,00,000 25,000 8 From 4,00,00,001 to 5,00,00,000 28,000 9 From 5,00,00,001 to 6,00,00,000 31,000 10 From 6,00,00,001 to 7,00,00,000 34,000 11 From 7,00,00,001 to 8,00,00,000 37,000 12 From 8,00,00,001 to 9,00,0...