Analyst tells Sarawak, Petronas to go for progressive tax

Petronas and the Sarawak government recently announced their decision to resolve a tussle over the state’s oil and gas assets.

PETALING JAYA: An oil and gas analyst has proposed that Sarawak levy a form of progressive sales tax on Petronas instead of fixing the rate at a flat 5%.

Renato Lima de Olivera, an assistant professor at the Asia School of Business, said this would ensure that the state remain attractive for new investments in exploration and production of petroleum.

“If taxes are deemed too high and regressive, then there is no incentive to invest in finding and developing new oil and gas fields,” he said. “A progressive tax structure will mitigate this.

“Otherwise, what you will see is higher taxes from current fields, but these fields will eventually deplete by the natural extraction process.”

A progressive tax structure would essentially see the tax rate increase or decrease depending on global oil prices.

A progressive rate, de Olivera said, would allow Petronas to share revenues proportionally once global oil prices increase again.

Recently, the Sarawak government and Petronas announced their decision to resolve their tussle on the management of oil and gas assets in the state.

Under the agreement, Petronas will pay RM2 billion in settlement for the Sarawak state sales tax for 2019. The state agrees that all future payments of the petroleum sales tax will be lower and staggered, based on future negotiations.

De Olivera described the settlement as a positive step, saying the uncertainty had been a barrier to new investments.

“This decision is a big win for the state of Sarawak,” he said. “Although we don’t know yet what will be the final regulatory framework to be used, Sarawak will now be able to negotiate from a position of strength.”

Sabah Chief Minister Shafie Apdal has said the state was expected to collect a 5% sales tax before May 28.

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