Petronas agrees to settle RM2 billion tax owed to Sarawak

Petronas and the Sarawak government have been entangled in a legal dispute over the petroleum tax imposed by the state.

KUALA LUMPUR: National oil company Petronas today agreed to pay some RM2 billion in sales tax owed to Sarawak, after reaching a settlement over a dispute on the management of oil and gas extracted from the state.

A joint statement by Petronas and the Chief Minister’s Department said both parties had agreed to work together to develop the oil and gas industry in Sarawak, with Petronas agreeing to drop its appeal against the High Court’s decision ordering it to pay the tax.

“Petronas will continue negotiations with Sarawak to enable more active involvement by the state government in investment opportunities in the state’s oil and gas industry based on commercial terms,” the statement added.

In return for Petronas’ agreement to settle the payment, Sarawak would gradually decrease the 5% sales tax rate imposed on the oil firm, it added.

In January last year, the Sarawak government imposed a 5% sales tax on Petronas’ petroleum products under the state’s Sales Tax Ordinance 1998.

Petronas however refused to pay the tax, saying it was unconstitutional, resulting in the state government’s legal action against it.

On March 13, the Kuching High Court ruled that Sabah and Sarawak had the right under the Federal Constitution to impose sales tax on petroleum products, dismissing Petronas’ bid to declare the Sarawak state sales tax null and void.

According to the statement, all agreements between the Sarawak government and Petronas under the Petroleum Development Act 1974 are still valid and in force.

“Petronas is still recognised as the national oil company that acquires full authority in regulating the development of the oil and gas in the country,” it said.

Sarawak Chief Minister Abang Johari Openg said today’s settlement based on the Malaysia Agreement 1963 (MA63) marked a significant milestone for the state and federal governments.

“I believe this will create a more stable business and investment environment, propelling the oil and gas sector in the state,” he said, adding that the state government was committed to working with the federal government and Petronas to resolve other related issues.

Sarawak and Sabah have been fighting for more share of revenue from Petronas over oil drilled in their territories.

Last year, then prime minister Dr Mahathir Mohamad said Putrajaya could not meet the demand by Sabah and Sarawak to increase the royalties paid by Petronas to 20%.

Petronas had also cited rising production costs and low profit margins as reasons for not being able to pay increased royalties.

Mahathir had also said the federal government could sell stakes in Petronas to Sabah and Sarawak, a proposal criticised by politicians and activists demanding the restoration of MA63.

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