After Sarawak, Sabah starts imposing petroleum sales tax

Sabah Chief Minister Datuk Seri Shafie Apdal speaks to the media March 30, 2020. — Picture courtesy of the Sabah Chief Minister’s Dept
Sabah Chief Minister Datuk Seri Shafie Apdal speaks to the media March 30, 2020. — Picture courtesy of the Sabah Chief Minister’s Dept

KOTA KINABALU, April 7 — Sabah has implemented a 5 per cent sales tax on petroleum products sold in its territory, said Chief Minister Datuk Seri Mohd Shafie Apdal.

He said he informed petroleum companies of the state’s decision to collect the tax last month and it should come into effect immediately.

“We’ve done it already, last month,” he said when asked what was Sabah’s plan to impose the tax.

This comes after the High Court ruled last month that Sabah and Sarawak have the right under the Federal Constitution to impose a sales tax on petroleum products.

Shafie told reporters that the state began planning to impose state sales tax and had discussed this with former prime minister Tun Dr Mahathir Mohamad when they were negotiating for a higher oil royalty payment of 20 per cent as stated in the Pakatan Harapan manifesto. 

“He told me to hang on for a while, as there were other constraints faced by the country and it would also affect Petronas at the same time,” said Shafie.

The PH administration collapsed at the end of February and was replaced by the informal Perikatan Nasional coalition as the government.

Shafie’s state administration backed Dr Mahathir in the power struggle and is now considered an Opposition state.

Shafie said he then discussed the sales tax with the oil companies and they indicated their acceptance.  

“So long as we have spelled out our plans and given them early notice, they are okay. They don’t want short-term (measures) or U-turns. They need us to be clear for them to plan properly,” he said.

When asked whether the state has begun collecting the tax, Shafie said he “hopes so”.

Sabah and Sarawak moved to impose the state sales tax after the federal government’s reluctance to increase the oil royalty. 

Sarawak began to impose the 5 per cent sales tax on its petroleum products since January last year under the state’s Sales Tax Ordinance 1998.

It also sued Petronas for unpaid state sales tax and penalties amounting to RM1.3 billion.

Earlier this month, Sabah’s Finance Ministry issued a letter to nine oil companies including Petronas informing them of the 5 per cent sales tax on petroleum and natural gas products with effect from April 1.

Under Section 10(1) of the State Sales Tax Enactment 1988, the petroleum companies were to obtain necessary licences to allow for the sales of the petroleum products. The petroleum companies faced an RM50,000 fine or jail up to three years or both if they failed to register.

Petronas had filed a court case to review Sarawak’s move to implement the sales tax but on March 13 earlier this year lost the case.

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