The curious case of the 0.1 per cent service charge

EARLIER this year, readers may have been shocked to read about a coffeeshop zi char chain which imposed a 0.1 per cent service charge on its dine-in customers. The service charge was applied from 1 August 2022 and lasted a mere two weeks before it was reversed due to “customers’ reactions”. The move prompted considerable debate about the reasonableness of a stall in a coffeeshop imposing a service charge and what level of service could be expected to justify such a charge.

Beyond the shock factor of coffeeshop stall deciding to impose a service charge, another curious issue was the rate of the charge, at 0.1 per cent. At such a rate, the revenue derived from the service charge would be minimal at best, prompting the question as to why the stallholders would risk raising the ire of patrons unhappy with the charge “on principle”. In this case, there was far more to the story than it would initially seem.

It turns out that under Singapore’s Goods & Services Tax regulations, whenever a merchant lists or states the price of goods and services, the price stated must be GST-inclusive. Failure to do so would subject the merchant to a fine not exceeding S$5,000. This would naturally mean listing a higher price (by 7 per cent) than if the price were GST-exclusive. However, there is an exception to this rule for goods and services provided by hotels and food and beverage (F&B) outlets that are subject to a service charge. In such cases, the GST-exclusive price can be stated, but customers must be informed that the prices displayed are subject to GST and a service charge. Further, even if the service charge is imposed only on dine-in patrons, there is no need to display two price lists; a list stating the GST-exclusive prices will suffice.