Sabah could be losing billions over petroleum products, says MA63 expert

Zainnal Ajamain says the number of vehicles in Sabah and Sarawak has increased tremendously over the years, along with the use of fuel.

KOTA KINABALU: Sabah’s adviser on the Malaysia Agreement 1963 (MA63) claims that the state could be losing up to RM5 billion a year due to a breach in the accord.

Speaking to FMT, Zainnal Ajamain said a close look at the Federal Constitution and MA63 would show that both Sabah and Sarawak are eligible to collect revenue from the import tax of petroleum products.

He said this could be collected through the levy of sales taxes, especially on petroleum products.

Following a 1999 amendment to the Sales Tax Act 1972, he said, the states’ right to collect these taxes was replaced with a direct payment of RM120 million in the form of a fixed grant each year.

“However, this amount is insufficient and unfair,” Zainnal said.

“The replacement grant does not sufficiently replace what was lost through the amendment. The amendment, supposedly to fulfil the requirement of the Asean Free Trade Area, effectively took away our constitutional rights.”

The federal government at the time replaced import and excise duty with a specific tax on petroleum products.

Sabah and Sarawak were assured that they would not lose the revenue from this income source as they would be given a fixed grant based on the income and excise duty calculated that year.

But Zainnal said this was confusing as the number of vehicles in Sabah and Sarawak had increased tremendously over the years, along with the use of fuel.

He said that from 2000 to 2014, the federal government paid a fixed amount of RM120 million to Sabah and Sarawak although the value of fuel used in both states had increased to billions of ringgit.

“This means that the fixed grant paid to the states each year assumed that the volume of petroleum products used in Sabah and Sarawak did not increase, even after many years,” he said, adding that this was illogical.

A simple comparison between fuel prices in Sabah and Brunei showed that Sabahans are paying about 40% more than people in Brunei, he said.

As Brunei imposes no import or excise duty, or any manner of tax on imported petroleum products, he said it could be concluded that the additional amount Sabahans must fork out for their fuel is the value of the taxes imposed by the government on petroleum products in Malaysia.

From these numbers, he said, it is easy to calculate how much Sabah and Sarawak have lost each year because their power to collect these taxes has been suppressed by the federal government.

“Let’s say that Sabah has two million vehicles using an average of 70 litres of fuel which costs about RM2 per litre. This means Sabahans are using RM280 million worth of fuel per week or RM14.56 billion a year.

“This also means that Sabah has lost RM5.82 billion a year in import duty and excise duty. As compensation for this loss, the federal government pays us only RM120 million a year. The rest goes into the federal coffers,” he said.

Zainnal urged the governments of Sabah and Sarawak to revisit the 10th Schedule, Part V Item 1 of the Federal Constitution and reclaim their rights over petroleum products.

He said the federal government’s solution to the loss of income for Sabah and Sarawak is a “deception” and a clear breach of MA63, as import and excise duty were abolished in 1999.

The federal government, he said, could start by reviewing the value of the grant and taking into consideration the increase in number of vehicles in the states in order to make the necessary adjustments.

“Sabah has lost about RM5.7 billion a year in revenue. This can be offset by reducing fuel prices in Sabah by 40 sen per ringgit.

“Imagine the implications of that reduction on the people’s economy and the business network,” he said.

However, he added that the decision lies with the prime minister.

“As a responsible and trustworthy prime minister, Dr Mahathir Mohamad must be ready to return the rights of Sabah and Sarawak instead of this income going to the federal coffers,” he said.