Tax Matters | The Service Charge – is it mandatory?

Paulo Cordeiro de Sousa*

When you travel around the world and go to a restaurant, it is not unusual to find in the bill an additional 10 or 15% service charge (“SC”) over the total price of the service. In some cases, the SC is already added into the final amount due; in other cases, the bill just states, for example, “10 to 15% service not included” – meaning that the final amount due does not include the SC but that the customer should consider paying an amount equal to 10 to 15% over the value of the bill. It is commonly known that such amount is destined to be split by the employees of the restaurant, who usually earn a low base salary.
In Macau, with some exceptions, the vast majority of establishments that provide food and beverage services to their customers (restaurants, bars, cafés, etc.) charge 10% SC in the final bill. The customer usually pays without questioning, but if you browse the web you will find that a lot of people wonder whether the SC is mandatory by law. The correct answer is: it is not!
A lot of people confuse the matter, believing that the SC is a Tourism Tax (“TT”) – the TT Regulations were approved by Law 19/96/M, of 19 August, and this is a tax that must be charged by hotels and by some other establishments like health clubs, saunas, massage parlours and “karaoke” bars to their customers. The TT rate is 5% over the price of the service. If you go to a hotel bar you will verify that, apart from the price of the service, the final bill charges two additional items, the 5% TT and 10% SC. Restaurants, bars, and cafés that are not operated by hotels or establishments as the ones mentioned above do not charge TT in their bills, because the TT regulations expressly exempt them from this tax.
So, if the SC is not a tax created by law, why should we pay it? Well, the answer is not so simple. One may argue that, if it is not mandated by law, it is illegal for restaurants and other establishments to charge it as a mandatory item in their bills. It could be deemed contrary to the Consumer Protection Act (Law 12/88/M, of 13 June), which requires that the consumer is duly informed (i.e. without the use of any kind of trickery) of the price of the goods and services that he/she is purchasing. In my opinion, it ends up as a contractual issue. The regime applicable to hotel and similar activities (approved by Decree-Law 16/96/M, of 1 April) – which also applies to restaurants, bars, etc. – sets forth that the price list must specify the taxes and other fees/charges that are charged to the customers over the prices of the goods and services, or mention that such taxes/fees/charges are already included in the price. So, if the customer is provided with the price list and such price list states that to the price will be added a 10% SC, it is up to the customer whether to order the service, contractually accepting the SC – in which case he/she should not challenge the charge in the final bill – or to go away before ordering the service. However, the customer may challenge the inclusion of SC in the final bill if the price list does not make any reference to it.
Another issue is the use of the SC. The labour law sets forth that the SC charged to customers should be included in the workers’ remuneration. This means that the SC cannot be treated as additional income by employers, it must be split between the workers, as part of their salaries. Otherwise, the employers violate the law. This is something that should be monitored and supervised by the authorities.