COVER STORY (Spotlight Weekly)

Season Of Protest

As the deadlock between hoteliers and hotel workers continues over the issue of levying a 10 per cent additional service charge, the future of the hospitality industry looks uncertain. The standoff may have far-reaching consequences on the entire tourism sector

By BHAGIRATH YOGI

As the peak tourist season (October-February) was approaching , tourism entrepreneurs in general and, hoteliers in particular, were looking forward to brisk sales. Suffering from the onslaught of bad publicity in the aftermath of hijacking of an Indian Airlines (IA) aircraft that left Kathmandu for New Delhi on Christmas eve last year and the subsequent cancellation of all IA flights to Nepal for five months, they had reasons to be optimistic. No more. The announcement by hotel union leaders last month that they would go on an indefinite strike from November 19 was enough to pour cold water on their hopes. The hotel workers have demanded that a 10 percent service charge should be levied on all the services offered to guests and distributed as tips.

The trade unions decided to postpone their strike till next month (December 11) on Saturday after several rounds of meetings among the government, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the employees. But as there are no signs of consensus in the horizon, it is much likely that the confrontation will take a new turn as soon as the deadline expires.

"We will go on strike beginning next month if our demands are not met by then," said Achyut Raj Pandey, President of Nepal Tourism and Hotel Workers Union (NTHWU), one of the two organizations spearheading the struggle. Added P. P. Khand, another activist, "We don't care if the tourism industry collapses because of our demand. All we say is that our demands must be met."

With the adamant posture adopted by trade unions affiliated with two of the largest political parties in the country, hoteliers have found themselves at an inconvenient position. "We are still hopeful that the government will take any decision keeping in view the long-term interest of the tourism industry," said Narendra Bajracharya, President of the Hotel Association Nepal (HAN), an umbrella organization of hotel entrepreneurs all over the country. "In any case, we are not going to act under ëdeadline pressure' and threats."

Threats are coming, of course, from both within and without. In a series of shutdown strikes, the Group of Nine Left parties has called two-day long nation-wide strike (`Nepal Bandh') on November 16 and 17 in order to pressure the government to withdraw recent increase in prices of petroleum products. The proposed ëbandh' coincides with the 39th annual conference of the World-Wide Fund for Nature that has brought together nearly 600 international delegates, including Prince Philip of the Great Britain. "The strike will† send a wrong message across the world and we will be losing a chance to give international publicity to Nepal," said Dr. Chandra Gurung, executive director at the WWF-Nepal office.

Problems like uncollected garbage, growing pollution in the capital valley and taxing of tourists even by municipalities continue to grow. Moreover, the uncontrolled growth in the number of hotels and travel agencies has given rise to an unhealthy cut-throat competition among the entrepreneurs. The number of hotel rooms was little more than 11,000 in 1995 and that has rose to more than 17,000 now. This growth in number of rooms could not be matched with the growth in tourists especially due to lack of adequate planes with the Royal Nepal Airlines Corporation, the national flag carrier. The hotels in Nepal are surviving thanks to the depreciation of Nepali currency vis-a-vis the US dollar.

"We have the capacity to accommodate nearly one million tourists now but tourist arrivals are almost half of that," said Bajracharya. The total number of tourists visiting Nepal stood at around 500,000 last year. Earnings from the tourism sector, which employs nearly 200,000 people, stood at US$ 168 million in 1999.

For a sensitive industry like tourism, the latest demands by the hotel workers have come as a shock. "We are already charging a 10 percent Value Added Tax and 2 percent Tourist Service Charge from the visitors. If the 10 percent additional charge is added as service tax, it will come to the range of 23 percent. It will have a very big negative impact upon the hotels," said Bajracharya. "Moreover, hotel workers are the most privileged group compared to any other labor sector." Hotel entrepreneurs said tourists have been paying nearly 28 percent more in terms of indirect taxes on food and beverages.

Hoteliers say the provision of service charge is not in practice in South Asian countries. In response to a letter by HAN, Secretary General of the Federation of Hotel and Restaurant Associations of India Shyam Suri wrote in April this year that such services are levied by only a minority of hotels in India and mainly on banquet sales. Very few of them levy a service charge on payments for rooms and for restaurant bills. "The service charges are supposed to be in lieu of gratuity for the serving staff. Some hotels distribute only part of it to the serving staff and keep the rest for the hotel in the name of breakage etc," he said.

In a similar letter to HAN dated May 18, 2000, Pakistan Hotels Association (PHA) said that there is no provision of separate service charge through normal billing to the guest in Pakistan. " Service charge or the gratuities (in other words, tips) are directly paid by the guest at his own discretion. There are no hard and fast rules toward payment of tips," wrote Moazzam Ali Khan, Chairman of PHA, in his reply.

There are different practices around the world on tipping hotel workers. According to information compiled by the Singapore Hotel Association, tipping is voluntary in Hong Kong and the percentage depends on the level of service. In Japan, hotels impose a 10 percent service charge which is considered as revenue, as tipping is not encouraged. In the Philippines, service charge collected is distributed to employees on pay day and tipping is allowed in addition to the service charge imposed. Under the regulations, the split is 85 percent to employees and 15 percent to establishment.

Hotel union leaders in Nepal claim that imposing a 10 percent service charge on guests is a well-accepted practice in different parts of the world. "Front desk workers are already enjoying such benefits in the form of tips. All we want is to legalize and distribute it among all the employees at the hotelófrom general manager to the utility worker," said Bishnu Lamsal, member-secretary of the joint hotel workers action committee. "Moreover, it will help all the parties concerned -- in terms of additional revenue for the government and more foreign exchange earnings for the tourism industry."

Trade union leaders also claim that the provision of service charge will help make transactions at the hotels transparent. "Most of the hotels are now practicing fake billing and are not transferring the VAT they collect from guests to the government. Once this system is enforced, there will be no room for foul play," said Madhav Neupane, President of Nepal Independent Hotel Workers Union, affiliated to the pro-UML trade union, GEFONT. "We are even ready to withdraw the service charge provision if the revenue from hotels didn't go up by three times over the next two years," he claimed.

Hotel entrepreneurs dismiss such allegations as baseless. "The accounting system at hotels are transparent and there is no room for forgery," said Ajay Ratna Sthapit, general secretary of HAN. "Tax officials do scrutinize our transactions all the time. Moreover, it is not we (the hotel owners) but the hotel employees themselves who keep accounting records.

As both the hoteliers and trade unions try to build public opinion in their favor through press meets and advertisements in major newspapers, missing in the whole debate is the view of tourists who are the ones who will be feeling the heat.

"Tourists always will have a choice," said Tek Chandra Pokhrel, a veteran tourism entrepreneur. "The problem with we Nepalese is that instead of adopting the policy of lengthening the stay of tourists and developing more facilities for them to spend here, we are trying to impose new taxes which will ultimately scare them away."

The average length of stay for a tourist in Nepal remains almost same (12 days) over the last two decades. Despite much-hyped programs like ëVisit Nepal Year 1998,' the country hasn't been able to identify new tourism destinations or develop new tourism products. The private-sector-dominated autonomous agency, Nepal Tourism Board, which aims to promote Nepal abroad, is yet to meet the people's expectations. While there has been a concentration of tourists in areas like Royal Chitwan National Park and Annapurna region, there are no facilities to attract tourists to visit a place like Khaptad in the far western development region.

Tourism entrepreneurs are worried to see Nepal emerging as a cheap tourist destination. Average per day spending by a tourist in Nepal remains around US dollars 45 over the last few years. "We are selling our products and services at almost the same rates or even below compared to what we did in the early sixties," said Pokhrel. "More and more Indian tourists are now flying to Bangkok or other East Asian countries instead of coming to Kathmandu."

Hoteliers insist that imposing an additional service charge in a compulsory way will have an adverse impact upon the hospitality industry. "Nepal is renowned for its hospitality around the world. We are afraid of what may happen when there is no motivation left for workers," said Bajracharya.

Private sector leaders, too, are watching the development in the hotel sector closely. They are worried that laborers in other sectors of the economy could soon pick up the case forwarded by the hotel workers. "We have urged the trade union leaders and hotel management to resolve the issue through dialogue and postpone the proposed strike," said Rajendra K. Khetan, ex-officio chairman of the Employer's Council at the Federation of Nepalese Chambers of Commerce and Industry. "Any blow to the tourism industry -- one of the biggest foreign exchange earning sectors in the country -- will have an adverse impact on the entire economy.

The Hotel Association of Nepal (HAN), too, has demanded that the government ban the proposed strike by the hotel employees by declaring hotels as essential services under the Essential Service Act. The government had enforced the Act only a couple of months back to ban the strike by employees at the government-owned corporations.

Trade union leaders won't be impressed. "How can the government suppress our rightful demands by using force? We have been raising this issue for the last two decades and a study done by a government committee two years ago also recommended introducing the service charge in the hotels," said Lamsal.

Trade union leaders claim that most hotel owners are not paying salaries and other benefits to their workers as stipulated by the Labor Act. As hotel employees have to work during odd hours, their average work hours range from around 55 to 58 hours per week, up from standard 48 hours per week set by the International Labor Organization. After textiles, hotel sector comes second in terms of disputes registered at the Labor Offices and courts.

Those studying the post-democracy labor movement in the country say such disputes could be settled in a much effective way through a decentralized approach. "Central level decisions from the government may not leave good precedents in such disputes," said Dr. Narayan Manandhar, executive director at the Industrial Relations Forum of the FNCCI. "For a service industry like tourism where demand is always unstable, agreements (between the labor and management) should be flexible. Such disputes can be resolved much easily at the enterprise level rather than in a centralized way."

Some five-star hotels have already devised -- and are practicing ways -- to motivate their workers. Hotel Soaltee, for instance, offers incentives to its workers to go on leaves. In a competitive environment under economic liberalization, enterprises need to be given more freedom to devise their strategy, say experts. "Unfortunately in the case of Nepal, bargaining is getting very centralized and those reaping the benefits are foreigners, not Nepalese," says Dr. Manandhar.

Adds Yogendra Shakya, former President of HAN, "The problem in this country is that labor is highly protected. Unless we have a balance between the labor laws and economic conditions of the country, tourism industry will not grow."

As the debate continues, a crisis of confidence emerging among the hotel management, workers and the government. Tourism entrepreneurs even suspect that the government may be supporting the hotel workers under pressure from the trade unions. Officials don't agree. "We are playing the role of a mediator upon requests from both the hotel owners and hotel workers. We want to see this issue resolved in a peaceful way after studying international practices and other aspects related to tourism in the country," said Shanker Koirala, joint secretary at the Ministry of Culture, Tourism and Civil Aviation, who is taking part in the negotiations.

Sources said the government is likely to announce a task force to study the demands of the agitating workers. Whether the task force will be able to find a common ground for both the hotel management and workers remains to be seen. Whatever its outcome, it is certain that the hospitality industryóthat is already suffering from bad publicity in the wake of growing Maoist activities in the countryóis not going to have smooth ride in the days ahead.

Hotel Industry

No. of Hotels 846
No. of Rooms 17,068
No. of Beds 30,981
Source : MOCTCA, 2000