Petronas set to end dispute with Sarawak over sales tax


PETROLIAM Nasional Bhd (Petronas) is expected to officially drop its appeal against a tax payment ruling by the High Court today, with sources saying the national oil company will likely give in to Sarawak’s 5% petroleum product sales tax demand.

Petronas filed the appeal on March 13 this year to nullify the RM1.3 billion sales tax demanded by Sarawak, but the government-controlled company has said it would withdraw legal action against Sarawak on grounds that both parties were finalising an agreement.

The company’s lawyer Datuk Malik Imtiaz Sarwar informed the court at a hearing last month that Petronas had given an undertaking to retract the appeal latest by today.

If the deal follows through, it would serve as a turning point for the local oil and gas industry, which had been largely regulated under one law for more than four decades.

The authority of the Petroleum Development Act 1974, which grants exclusive ownership of the country’s petroleum resources to Petronas, would effectively be rendered as non-absolute.

The outcome of the dispute is expected to set a precedent for other oil-rich states to follow suit in claiming sales tax. The Sabah state government has announced it would collect a similar tax on petroleum products effective April 1 and Petronas is expected to pay another RM500 million.

The development comes as Prime Minister (PM) Tan Sri Muhyiddin Yassin seeks to secure the support of parties like Gabungan Parti Sarawak (GPS), which accounts for 18 of the 222 elected seats.

Political analyst Prof James Chin said it would not be a surprise if Petronas stopped pursuing the case as it is one of many promises made to Sarawak to secure GPS support.

“I think it’s quite clear that Petronas has to withdraw its appeal after receiving instructions from the PM — and this is just one of it. Petronas is also expected to do other stuff including giving more opportunities to Sarawakians to be more involved in the industry.

“The problem is any special deal you give to Sarawak will lead to other states asking for the same. So, we can expect some difficult coming days for Petronas,” Chin told The Malaysian Reserve.

He said the question remains, whether the deal is permanent or a one-off arrangement.

In a prior settlement reached in May, Petronas said it agreed to pay in full the petroleum product sales tax imposed by Sarawak in 2019, which was in excess of RM2 billion, or 5% of the products’ sales value.

The joint statement signed by both sides stated that Petronas would withdraw its appeal against the Kuching High Court ruling and the Sarawak state government, in turn, would drop all claims in its civil case against Petronas for the payment of petroleum product sales tax.

Both parties had also agreed 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.

It is not known if the agreement to pay the sales tax to Sarawak means Petronas does not have to pay any other oil revenues to the state.