Petronas’ appeal against RM2b Sarawak petroleum sales tax to be heard today

KUALA LUMPUR : Amid upcoming changes in the top leadership of Petroliam Nasional Bhd (Petronas), all eyes are now on whether it will retract its appeal in court to nullify the RM2 billion petroleum products sales tax demanded by Sarawak.

Today, the Court of Appeal in Putrajaya will hear Petronas’ appeal against the Kuching High Court’s decision three months ago that Sarawak is entitled to impose a state law to collect petroleum products sales tax from 2019 onwards.

The status of the appeal will pave the way forward for the nation’s oil and gas industry, which is heading towards uncharted waters as oil-rich states like Sarawak seek more control over their oil and gas assets currently controlled and regulated by Petronas under the Petroleum Development Act (PDA 1974).

In the midst of this, Malaysia’s federal administration under Perikatan Nasional, which took over Putrajaya in February, is attempting to consolidate support ahead of a potential vote of no confidence in the Dewan Rakyat next month.

In December last year, Petronas president and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin told The Edgethat “the legal process will have to take its course” with respect to the Sarawak sales tax issue.

The understanding is that Petronas already pays taxes to the federal government in the form of petroleum income tax, and that Sarawak’s petroleum products sales tax under its State Sales Tax (Taxable Goods and Rate of Tax) (Amendment) (No. 2) Order, 2018 is deemed as double taxation.

In May this year however, Petronas and Sarawak state government issued a joint statement saying that Petronas had agreed to pay the petroleum products sales tax imposed by Sarawak for the year 2019, which amounted to RM2 billion.

The statement added that both parties would drop all legal actions on the matter and negotiate lower sales tax moving forward, with prime minister Tan Sri Muhyiddin Yassin hailing the deal as the right approach in terms of the long-term economic, financial and social interest of the nation.

Following that, on June 6, the Prime Minister’s Office announced that Wan Zulkiflee would leave the national oil company on July 1 after 37 years of service, and would take over the helm of troubled Malaysia Airlines Bhd. His post at the national oil company would be replaced by Petronas executive vice-president and group chief financial officer, Tengku Muhammad Taufik Tengku Aziz.

The status of the deal, however, came into question on June 11, when case management for Petronas’ appeal went ahead to arrange for the hearing tomorrow, instead of having the appeal retracted.

A day later, Sarawak Chief Minister Datuk Patinggi Abang Johari Abang Openg told reporters that Petronas was in the process of withdrawing its appeal, which was filed before the new federal government made any decision on the matter. “When you want to withdraw (an appeal at the Court of Appeal), there is a procedure (requiring the parties involved to appear) in the court (to make an application for the withdrawal),” he reportedly said.

For Perikatan Nasional, an end to the appeal will further smoothen relations with its political ally Gabungan Parti Sarawak (GPS), which is chaired by Abang Johari and controls 18 seats in the Dewan Rakyat.

Beyond the issue of SST on Petronas, Abang Johari also said the federal government under Muhyiddin had set up a committee, jointly-chaired by Finance Minister Tengku Zafrul Tengku Abdul Aziz and Senior Minister of Works Datuk Seri Fadillah Yusof, to negotiate on other aspects of Sarawak’s involvement in the nation’s petroleum and gas industry.

THE EDGE MARKETS

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