A timeline of the oil sales tax dispute

It remains unclear if the deal is permanent in nature or a one-off pact


PETROLIAM Nasional Bhd (Petronas) yesterday withdrew its appeal against a High Court verdict demanding that the company pay RM1.3 billion in sales tax to Sarawak.

The decision puts an end to a prolonged dispute over the validity of the state-imposed taxes on the country’s oil resources. The compromise was made on the back of a settlement reached between the parties involved.

However, it remains unclear if the deal is permanent in nature or a one-off pact.

The affirmation of the High Court ruling is expected to set a new course for the oil and gas (O&G) industry, which has long been guided by terms under the Petroleum Development Act (PDA) 1974.

The outcome of the dispute will set precedent for other oil-producing states to follow suit by imposing similar taxes on petroleum products and demanding more from Petronas. Sabah had announced that it would collect a similar tax on petroleum products effective April 1.

With the path ahead still uncertain, here is a look back at some key highlights from the dispute.

Nov 21, 2019

Sarawak commences legal action against Petronas over the latter’s non-payment of a 5% tax on petroleum products, which came into effect on Jan 1, 2019.

The state government and comptroller of state sales tax (SST) filed the writ of summons and statement of claim against the national oil company at the Kuching High Court. The amount owed is RM1.3 billion.

Sarawak was represented by state legal counsel Datuk Seri JC Fong, state Attorney General Datuk Talat Mahmood Abdul Rashid and three other lawyers, while Petronas’ counsels were Datuk Malik Imtiaz Sarwar and Alvin Chong.

Over the course of the proceeding, Petronas argued that certain provisions under Sarawak’s SST Ordinance 1998 go against the Federal Constitution and are therefore, null and void.

It also contended that the state has no right or constitutional power to impose sales tax on petroleum products, which is the subject matter under the federal list of the Constitution.

The state government, in response, argued that the PDA failed to provide adequate compensation for the vesting of ownership of the state’s O&G resources to Petronas. It said the PDA is also a law that contravenes Article 13(2) of the Federal Constitution.

It further posited that under the Malaysia Agreement 1963 and the Malaysia Act 1963 that the state has the power, if it so wishes, to pass laws to impose SST.

March 13, 2020

Kuching High Court Judge Azhahari Kamal Ramli ruled that it was the constitutional right of the Borneo states of Sabah and Sarawak to impose sales tax on their petroleum products.

Petronas’ application for a judicial review to declare Sarawak’s sales tax as null and void was dismissed.

The company subsequently appealed against the decision. The Court of Appeal fixed June 23, 2020, to hear the appeal in Putrajaya.

May 8, 2020

Petronas and the Sarawak state government issued a joint statement, stating that the national oil company has agreed to pay in full the petroleum products sales tax imposed by Sarawak for 2019, which is in excess of RM2 billion or 5% of the products’ sales value.

Petronas will retract its appeal against the Kuching High Court decision and in turn, the Sarawak state government will drop all claims in its civil case against Petronas for the payment of the sales tax.

The parties also agreed that future petroleum products sales tax will be lower and staggered based on future negotiations, under the SST (Taxable Goods and Rate of Tax) (Amendment) (No 2) Order, 2018.

June 23, 2020

Petronas sought for a short adjournment of its appeal as the company was in the middle of finalising an agreement with Sarawak and the state’s comptroller of SST.

The appellate court was informed that Petronas had given an undertaking to retract the appeal latest by Aug 3. Justice Datuk Seri Kamaludin Md Said fixed Aug 3 for a mention in court.

June 26, 2020

Petronas refuted claims of being at odds with Prime Minister Tan Sri Muhyiddin Yassin over the payment of the sales tax to Sarawak. The company said it remained committed to working closely with Sarawak and its stakeholders to reach the best outcome on the matter.

“Our aim is to achieve a resolution that will lead to a more stable and conducive business and investment environment for the O&G industry, which will be especially important, given current market challenges.”

The allegation comes a week after former Petronas CEO Tan Sri Wan Zulkiflee Wan Ariffin resigned after 37 years in service. His sudden departure is said to be linked to the payment, but the government has since denied the rumour.

August 3, 2020

Petronas officially withdrew its appeal. Sarawak also opted to drop its cross appeal. Justice Datuk Abdul Karim Abdul Jalil ruled that both the appeal and cross appeal be struck out and that the decision of the High Court is upheld.