CONSTITUTIONAL expert Shad Saleem Faruqi is wrong in his interpretation of the law which has led him to conclude that the state cannot impose a sales tax on petroleum and petroleum products processed in the state, said the Sarawak government’s lawyer.

State legal counsel J.C. Fong said that if one were to go by Shad Saleem’s interpretation that the state cannot impose tax on items on the federal list in the federal constitution, then Putrajaya should not be able to impose federal taxes on items on the state list.

Fong was responding to Shad Saleem’s comments yesterday in Kuching at the forum “The Spirit of the Malaysia Agreement 1963 in our Constitution” .

The emeritus professor had argued Sarawak could only impose the 5% sales tax on items on the state list. Petroleum is listed on the federal list.

“We don’t share that view,” Fong told a press conference this afternoon at the state assembly building.

Fong said Shad Saleem’s argument “cannot be sustained legally”.

“If that is the case, then we can object to federal parliament passing laws imposing real property gains tax (RPGT), and stamp duty on transfer of land (in the state),” Fong said, because land is on the state list.

“Taking Professor Shad’s argument to its logical conclusion, or conversely, federal sales tax should not be levied on matters on the state list.”

Sarawak imposed the 5% sales tax on petroleum and petroleum products mined or processed in the state in January after introducing it in the 2019 state budget last year.

The state is now trying to get Petronas to make the tax payments it owes and believes Putrajaya is delaying the payment.

https://www.themalaysianinsight.com/s/189050

Fong said there were items which on the state list on which the federal government imposed tax, such as turtle meat and freshwater fish which are listed as taxable goods in the First Schedule to the Sales Tax (Rate of Tax No.2) Order, 2018. Yet, turtles and riverine fishing are matters on the state list, he said.

Another example is forestry which is on the state list, but hardwoods logged in the states are subject to the federal sales tax, he said.

“We say the better view is that state and federal governments can impose taxation either in their own list or in the federal list vice versa,” Fong said.

He added that in the spirit of the Malaysia Agreement, the Inter-Governmental Committee (IGC) Report, which is now an annexure to MA63, states that: “Taxation, including in particular customs and excise duties and taxes on incomes and profits, should be a federal subject but each Borneo states should have the power to impose a sales tax, if it wishes, provided that any federal sale tax would take priority over any state sales tax and provided that discriminatory rates would not be imposed on goods of the same type but of different places of origin”.

Fong added that this recommendation was incorporated into Article 95B(3) of the federal constitution.

“The recommendation and Article 95B(3)(c) clearly envisage that state sales tax and federal sales tax could be levied without discrimination on goods of the same type.

“Therefore, pursuant to Article 95B(3) of  thefederal constitution, state sales tax may also be imposed on liquefied natural gas or “petroleum gases” subject to the condition that payment of federal sales tax by a taxable person takes priority over payment of SST on the same type of goods. 

However, where a person is charged both federal sales tax and state sales tax on goods of the same type, federal sales tax gets priority in payment.

Chief Minister Abang Johari Openg had earlier this week said he would ensure that Petronas paid Sarawak the tax. – October 9, 2019.