After unprecedented RM16.5b H2 loss, Petronas pays Sarawak RM3b in sales tax arrears

Chief Minister Datuk Patinggi Abang Johari Openg receiving the cheque from Petronas chairman Tan Sri Ahmad Nizam Salleh (right) in a ceremony at Wisma Bapa Malaysia, Kuching, September 17 2020. — Picture by Sulok Tawie
Chief Minister Datuk Patinggi Abang Johari Openg receiving the cheque from Petronas chairman Tan Sri Ahmad Nizam Salleh (right) in a ceremony at Wisma Bapa Malaysia, Kuching, September 17 2020. — Picture by Sulok Tawie

KUCHING, Sept 17 — The Sarawak government today received over RM2.96 billion in state sales tax (SST) arrears from Petroliam Nasional (Petronas) after it withdrew its case challenging the state administration’s right to collect the tax on petroleum products within its territory.

The sum is for the 2019 assessment on the export of petroleum products.

Chief Minister Datuk Patinggi Abang Johari Openg received the cheque for the amount from Petronas chairman Tan Sri Ahmad Nizam Salleh.

Abang Johari said other oil companies have paid RM138 million in SST to the state government.

“We will use the money for our development,” he told reporters after receiving the money.

Also present was Finance Minister Tengku Zafrul Tengku Aziz.

Abang Johari said Petronas and its subsidiaries have fully settled the SST arrears as assessed by the Comptroller of State Sales Tax in accordance with the provisions of the Sarawak State Sales Tax Ordinance, 1998.

He added the amount was paid by Petronas and its subsidiaries.

“State Sales Tax for this year 2020 would be paid when assessment has been made based on the volume of the petroleum products, namely, crude oil, condensates, urea and liquefied petroleum gas actually sold and the sale value of these products.

“The payment of SST by Petronas and its subsidiaries is the result of a settlement reached between Petronas, the federal government and the state government whereby Petronas upon reaching an agreement to withdraw its judicial review appeal to the Court of Appeal, thereby and thus, recognising the State’s Constitutional power to impose the tax, the discontinuance of civil case by the State against Petronas was then withdrawn,” he said.

The chief minister said following this settlement of the legal proceedings, Petronas and its subsidiaries have registered as “taxable persons” and submitted their returns to the Comptroller of State Sales Tax.

“Consequently, the Comptroller has made an assessment of the tax due and Petronas and its subsidiaries were issued with the relevant notices under the Ordinance on September 10, 2020.

He said payments in accordance with these notices were made today in this simple ceremony here at Wisma Bapa Malaysia.

The chief minister also thanked Shell, Murphy Oil, Pertamina and Sapura OMV that earlier complied and settled the taxes due to the state.

He said the state government would now focus on discussions with the federal government to reach a commercial settlement on other matters relating to oil and gas found and produced in Sarawak.

In January last year, the Sarawak government imposed the five per cent sales tax on Petronas’ petroleum products under the state’s Sales Tax Ordinance 1998, which the latter refused to pay, citing it as unconstitutional.

On March 13, this year, the Kuching High Court ruled that Article 95B (3) of the Federal Constitution provided that the Legislature of Sabah and Sarawak may make laws for imposition of sales tax.

The court dismissed Petronas’s judicial review application to quash the notices of assessment issued by the Sarawak state government seeking the oil and gas company to pay RM1.3 billion in SST.

Petronas sought, among others, a declaration of certain sections of the notices as ultra vires to the Federal Constitution and null and void, and also sought a certiorari order that the notices dated August 28, 2019, October 7,2019, and November 13,2019, issued by Sarawak state government to Petronas to be quashed.

Earlier this month, Petronas reported an unprecedented RM16.5 billion loss in the first half of 2020 and said it must evaluate whether it could afford to pay a dividend to the federal government for the year.

The state oil firm is one of the country’s main sources of revenue.

*A previous version of this story contained an error which has since been corrected and clarified by the Sarawak CM’s Office.

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