Review tax law on tips, hotel workers urge MPs

Hotel workers want Parliament to amend the law to exempt their tips from taxation.

Kenya Hotel and Allied Workers Union (KHAWU) has written to the National Assembly’s Finance, Planning and Trade committee, seeking a review of value added tax on service charge and gratuity for hotel workers that came into force last year.

The union, which is affiliated to workers’ umbrella body, the Central Organisation of Trade Unions, is seeking a meeting next Tuesday with the committee chaired by Ainamoi MP Benjamin Lang’at to discuss the amendments.

“We request to meet you or any member of your committee to register complaints in respect to Value Added Tax Act No. 35 of 2013,” Wycliffe Sava Mundu wrote to the committee on July 18 on behalf of KHAWU secretary- general Nicholas Zani.

The union argues that the changes in tax law that took effect on September 2, 2013 – and which repealed the old law that excluded tax on service charge, tips and gratuity for hotel workers – is hurting its members and needs to be repealed.

The service charge is capped at 10 per cent of the price of the service. Mr Mundu, who is also the union’s deputy secretary- general, said the repealed VAT law has subjected hotel workers to double taxation.

“The new law discriminatively subjects tips and gratuities meant for our members to this tax though their income is subject to the statutory deduction of Pay As You Earn.

“We therefore request your audience on August 5, 2014 at 11am at your office to submit our official claim to enable you and your committee understand our complaint,” Mr Mundu says in the letter to the MPs.

Service charge is a fee for service rendered that is in addition to the amount already paid for a particular good or service.

In the hospitality industry, it is provided for under the collective bargaining agreements signed between employers and staff trade unions as a fee in lieu of a tip.

Mr Mundu said the hoteliers levy 10 per cent service charge on accommodation and food revenue. Beverage revenue attracts a 5.5 per cent charge while game and bus drives are charged at one per cent.

The government charges 16 per cent VAT on all revenue accruing from hotel rooms, food, beverages and transport. A training levy is also charged on the revenues accruing monthly.

The hoteliers say levying a 16 per cent VAT on a service charge of 10 per cent amounts to gross violation of their rights.

“Hotel workers’ earnings from service charge should not be vatable. It is employers who are supposed to pay these taxes,” Mr Maundu said.

He argued that by providing that VAT be levied on service charge, tips and gratuity, “the law had created a big loophole that hurts workers without any surety that the money actually goes to the taxman.”

The hoteliers’ attempt to amend the VAT law comes three months after the Finance, Planning and Trade committee rejected a petition by rival Kenya Union of Domestic, Hotels, Educational Institutions and Hospitals seeking amendments of Section 13(7) of the VAT Act.

The committee said in a report signed by Mr Lang’at that “there is no justification to exempt service charge in the hotel and tourism industry from being charged VAT.”

“Value Added Tax on the service charge does not amount to double taxation since the charge once billed to a client accrues directly to the employer and not the employee. The burden of tax is on the employer and not employee,” Mr Lang’at said.

Mr Maundu said that the rival union did not argue its case properly before MPs, noting that workers were being subjected to additional tax on their tips, which is usually lumped together with their monthly pay and taxed.