Petronas finalising agreement with Sarawak on sales tax with view to withdraw appeal

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PUTRAJAYA (June 23): Petroliam Nasional Bhd (Petronas) has informed the Court of Appeal that it is finalising an agreement with the Sarawak government and the state's Comptroller of State Sales Tax with regard to the RM2 billion in sales tax sought by the state for last year.

This was informed to the appellate court via a letter yesterday.

As such, Petronas counsel Datuk Malik Imtiaz Sarwar informed the three-member bench that it sought a short adjournment of its appeal. The matter was fixed for mention today.

“This follows reasons as stated in the letter in paragraphs two and three,” he said, citing the letter to the court.

Sarawak counsel Datuk Seri JC Fong informed the court that the state was with the view of an undertaking of a withdrawal of the appeal (for judicial review).

Justice Datuk Seri Kamaludin Md Said then fixed Aug 3 for the next date.

The other judges on the panel were Justice P Ravinthran and Justice Datuk Abu Bakar Jais.

Ravinthran is a judge who hails from East Malaysia in the proceedings, following a requirement that appeals in the Court of Appeal and the Federal Court should have at least one judge from Sabah or Sarawak.

After the proceedings, Fong confirmed with reporters that Petronas is withdrawing the appeal for judicial review.

Malik told reporters that the national oil conglomerate is finalising the agreement and given the undertaking to withdraw the appeal before Aug 3. “This is pending the settlement being finalised and the internal processes [within Petronas] being fulfilled,” he told reporters.

He emphasised this case with regard to Petronas' judicial review while Sarawak's civil suit against Petronas has been fixed for case management on July 3 in Kuching.

Petronas is appealing before the appellate court with regard to the Kuching High Court decision on March 13, which dismissed its judicial review application to challenge the sales tax imposed by Sarawak.

Kuching High Court Justice Azhahari Kamal Ramli dismissed Petronas' judicial review on March 13, which eventually meant Sarawak was entitled to collect the sales tax under the Federal Constitution for the two states which joined Malaysia in 1963.

Petronas is seeking orders to quash notices of assessment for an amount of more than RM1.3 billion issued by Sarawak's Comptroller of State Sales Tax, and declarations that the Sarawak government is not entitled to impose state sales tax (SST) on petroleum products.

The company is seeking, among others, a declaration of certain sections of the notices as ultra vires to the Federal Constitution and null and void, and also an order of certiorari that the notices dated Aug 28, 2019, Oct 7, 2019, and Nov 13, 2019 issued to Petronas to be quashed.

Sarawak imposed a 5% sales tax on petroleum products on Jan 1 last year under the state’s Sales Tax Ordinance 2018.

Following the High Court decision, Petronas filed the appeal which was scheduled to be heard today.

However, on May 8, the Sarawak state government and Petronas issued a joint statement that the national oil company had agreed to pay in full the petroleum product sales tax imposed by Sarawak for the year 2019, which was in excess of RM2 billion, or 5% of the products’ sales value.

The joint statement stated that Petronas would retract its appeal against the Kuching High Court decision that sought a declaration that the SST imposed by the Sarawak government is null and void.

In return, the Sarawak state government would drop all claims in its civil case against Petronas for the payment of petroleum product sales tax.

The parties also agreed that future petroleum product sales tax would be lower and staggered based on future negotiations under the State Sales Tax (Taxable Goods and Rate of Tax) (Amendment) (No 2) Order 2018.

“The Sarawak state government also agreed that the sales tax will be limited to petroleum products stipulated under Order 2018,” the statement read.

On June 10, the settlement was in doubt when Sarawak Consultative Committee on Malaysia Agreement 1963 (MA63) chairman Datuk Amar Mohd Asfia Awang Nassar said that Petronas had yet to pay the sales tax that was due to the state and instead filed an appeal over the matter in the Court of Appeal.

Mohd Asfia, also the Sarawak state legislative assembly speaker, said the Sarawak state government would continue its civil case against Petronas if no decision is reached through negotiations with the company.

Sarawak Chief Minister Datuk Patinggi Abang Johari Tun Openg reportedly said on June 12 that Petronas would withdraw its appeal.

Besides Sarawak, it was reported that the Sabah state government had implemented a 5% sales tax on all petroleum products in the state with effect from March as its Chief Minister Datuk Seri Mohd Shafie Apdal revealed.