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.