Sabah threatens action against oil and gas companies refusing to pay sales tax

KOTA KINABALU: The State government has issued a stern warning to two wholly owned subsidiaries of an oil and gas company operating in Sabah that they are legally obliged to pay them state sales tax (SST).

This is after the refusal by Repsol Oil & Gas Ltd (Repsol) and SEA Hibiscus Sdn Bhd (SEAH), both wholly-owned by Hibiscus Petroleum Berhad, to make the payment.

Sabah Finance Minister II Datuk Seri Masidi Manjun said the state government "remains fully committed in pursuing all its constitutional and legislative rights to recover the SST due for the sale of petroleum products" from both Repsol and SEAH in accordance with the State Sales Tax Enactment 1988.

For the record, Repsol and SEAH had applied to the Finance Ministry and were subsequently issued with the requisite licence as a "taxable person" pursuant to the State Sales Tax Regulations 1999.

"The state government therefore categorically refutes the alleged basis upon which Repsol and SEAH are refusing to make payment of the SST and has already demanded payment of the same," he said in a statement on Friday (June 10).

Masidi noted that there had been without prejudice discussions between the representatives of the parties in relation to the issue.

"However, the matter has now reached an impasse and both companies remain liable and have a continuing obligation to make payment for the outstanding amounts of SST, including penalties.

"The state government reserves its right to take any action deemed necessary within the powers, authority and jurisdiction of the state," he said.

The Edge Markets on June 7 reported that Repsol had stopped paying the SST after the Sabah Finance Ministry did not respond to its appeal against the tax enforcement.

Hibiscus said Repsol, which has a production-sharing contract (PSC) in the Kinabalu Oil Field, had been paying the SST "under protest" since 2020.

In a group filing, the group said SEAH, which is the holder and operator of the 2011 North Sabah Enhanced Oil Recovery PSC, had not made any SST payment to the state at all.

Hibiscus said Repsol had contested in Sept 2020 that it sold its crude oil entitlement from the Kinabalu Oil Field at the Labuan Crude Oil Terminal (LCOT) facility "outside the sovereignty and jurisdiction of the state of Sabah" and hence should not be charged the SST.

As Repsol did not receive any reply to its appeal for 20 months since then, Hibiscus said its board had resolved to discontinue the payment of SST, commencing from the lifting of crude oil undertaken on May 24.

The Sales Tax (Rates of Tax) Order 2018 on petroleum products, namely crude petroleum oil and natural gas/liquefied gas, was gazetted on Dec 6, 2018 and came into force on April 1, 2020.