High Court rules Sabah, Sarawak can impose sales tax on petroleum products

National oil company Petronas had claimed that some parts of Sarawak’s Sales Tax Ordinance 1998 were unconstitutional. (AFP pic)

KUCHING: The High Court today ruled that Sabah and Sarawak have the right under the Federal Constitution to impose sales tax on petroleum products.

High Court Judge Azahari Kamal Ramli dismissed the leave application for judicial review by Petronas to declare the Sarawak state sales tax null and void.

Petronas had claimed that some parts of the state’s Sales Tax Ordinance 1998, which require the national oil company to pay the 5% sales tax on petroleum products to Sarawak, were unconstitutional.

The company’s lawyer Malik Imtiaz Sarwar argued that the notice of assessment issued by the Sarawak government to Petronas seeking payment of the tax on petroleum products was therefore invalid.

“The power to impose the state sales tax is only applicable to matters that are on the state list, and petroleum is on the federal list,” he added.

However, Azahari said the power of the state to make laws for imposing the sales tax derives from Article 95B (3) of the constitution.

He added that there is no mention of such power being limited to matters on the state list.

He said the notices of assessment were also issued legally by the comptroller of the state sales tax.

“The first respondent (the comptroller of the state sales tax) also acted reasonably in issuing notices because the applicant took the stand that it is not a taxable person and had failed to submit the returns as requested by the first respondent,” he added.

Therefore, Azahari said, the judicial review, including the application for stay, was dismissed and the costs of RM50,000 to the respondent subject to the payment of the allocator fee.

Sarawak legal counsel JC Fong said he hoped Petronas would accept the decision instead of appealing against it.

“I hope Petronas, together with Petros and the Sarawak government, will work together to help boost the oil and gas industry which is currently facing challenges due to low oil prices and low global demand,” he said when met at the Kuching courthouse here today.

Sarawak Assistant Minister for Law, State-Federal Relations and Project Monitoring Sharifah Hasidah Sayeed Aman Ghazali meanwhile described the High Court decision as a “good victory” for the state.

“We hope Petronas will pay us the sales tax. This is our constitutional right.

“We have every right under the constitution, Malaysia Agreement 1963 and Inter-Governmental Committee Report to impose the sales tax (on petroleum products).

“Now that we have had the judicial review dismissed, we have a very good chance with the civil suit,” she said.

Meanwhile, Malik said he had informed Petronas about the decision, and that they would look through the issues again before bringing the matter up for further discussion.

“For now, we’re taking instructions on the matter and we’ll have to see where it goes,” he added.

Sarawak imposed a 5% sales tax on its petroleum products on Jan 1 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.