Based on the present production rate of oil and gas in Sarawak and at current global oil prices, the amount is RM40 billion annually. The SST will yield approximately RM3 billion additional revenues for the State. (Image by Pixabay: For illustration purposes only)

THE article captioned ‘Why the introduction of the Petroleum Sales Tax in Sarawak may not appeal to Everyone’ published in The Malaysian Reserve on Sept 30, 2019, contains a number of inaccurate statements relating to Sarawak's State constitutional rights to levy State Sales Tax (SST) on the sale of petroleum products, principally Liquefied Natural Gas, crude oil and condensates.

To begin with, the State Sales Tax Ordinance 1998 was passed pursuant to Article 95B(3) of the Federal Constitution.

This Article reads: “(3) The Legislature of the State of Sabah or Sarawak may also make laws for imposing sales tax, and any sales tax imposed by State law in the State of Sabah or Sarawak shall be deemed to be amongst the matters enumerated in the State List and not in the Federal List.”

Therefore, the State Legislature's constitutional authority to pass laws on SST is not dependent on Article 96 as contended in the Malaysian Reserve.

This right of the State to pass laws on SST was incorporated into the Federal Constitution pursuant to the recommendation in para 24(1) of Chapter III of the lnter-Governmental Committee (IGC) Report which is an Annexure to the Malaysia Agreement.

To question the State's right to levy SST (which is a revenue assigned to the State under Item 7 Part V of the Tenth Schedule of the Federal Constitution) is therefore a disguise to dishonour the Malaysia Agreement and what is expressly provided in the supreme law of the Nation as a source of revenue of Sarawak.

The exercise of a right so clearly enshrined in the Constitution should not be dependent upon the outcome of the current discussions on MA 63 which should be focussed on matters pertaining to the erosion or reclamation of those rights which Sarawak is legitimately entitled to, under MA 63.

Why SST by State Government?

The Chief Minister has repeatedly explained why SST needed to be imposed. The State needed this additional source to drive its development agenda.

It must be pointed out that according to publicly available data, from 1976 to 2017, the total revenues derived from the production and sale of oil and gas within Sarawak territory amounted to RM550 billion, of which only 5% or RM33 billion was paid to Sarawak. Sarawak has therefore contributed very significantly to federal coffers from its rich oil and gas resources since 1976.

All the natural gas derived from Sarawak was converted to LNG for export to Japan, Korea and Taiwan, earning very significant foreign exchange for the Malaysian Government. Hence, the imposition of SST on petroleum products is a discharge of the State Government's fiduciary duty to Sarawakians to seek a fairer share of the revenues from oil and gas produced in Sarawak.

Based on the present production rate of oil and gas in Sarawak and at current global oil prices, the amount is RM40 billion annually. The SST will yield approximately RM3 billion additional revenues for the State.

After all these years of contributing billions of ringgit to federal Treasury from the State's petroleum resources, what is the basis for the Minister of Finance, Lim Guan Eng, to say (as reported in Malaysian Reserve) that the State's imposition of SST to yield additional revenue to the State of RM 3 billion is unreasonable.

With regard to alleged loss of investor confidence in the Oil and gas industry in Sarawak due to imposition of SST, it must be pointed out that "trade, commerce and industry" are matters under the federal portfolio (Federal List).

lf the Federal Government feels it is unable to sustain investor interest and confidence in the oil and gas industry in Sarawak, because industry players, including Petronas, has to pay annually RM3 billon of SST, the Federal Government should consider seriously allowing the State to regulate fully the industry under its Oil Mining Ordinance and Distribution of Gas Ordinance.

The State Government is very confident that it is able to sustain investor confidence, whether short or long term, in the oil and gas industry in Sarawak. This is amply demonstrated by the fact that foreign oil companies operating in Sarawak such as Shell, Murphy Oil, Pertamina, etc, have paid the SST assessed up to date. Only Petronas has yet to pay.

The author is assistant minister in the Sarawak Chief Minister's Department in charge of law, state-federal relations and project monitoring

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