Taxable persons to pay SST on state’s O&G, by-products
ALL taxable persons must pay State Sale Tax (SST) when imposed on Sarawak’s O&G, exports or imports, sales of oils and oil fields, O&G trading and petroleum products in Sarawak under State Sales Tax Ordinance 1998 (SSTO) as Item 7 Part V, 10th Schedule of the FC has assigned that right to the State Comptroller of SST to impose the SST under Section 7(2) of SSTO 1998; those revenues received will be “credited to the State Consolidation Fund”.
The political, constitutional and legal histories of SST are amplified for a better understanding for settlement with a caveat.
Federal ST and SST can be imposed simultaneously on petroleum products or oil with Federal having the first charge under Clause 24(1) of IGC R62 and FC with out the fudged provisions. Royalty, disguised as cash payment, and SST can be imposed simultaneously under Items 3 and 7, of Part V, 110th Schedule and Section 45, 5th Schedule, Malaysia Act (‘MACT’) 1963, as Item 8(j) and 95B(3) were being fudged with ‘deemed’ mens rea to be on the Federal List only, not stipulated under IGC R62 Clauses 24(1) & (2)(e) and (d), MACT63, ‘ANNEX A’ to MA63, which is the mother of the supreme FC. Therefore, those fudged provisions are null and void and should be expunged as unconstitutional and illegal first as a critical preliminary issue: Marbury vs Madison (1803).
I. 1. Legally and constitutionally under SSTO 1998, IGC R62, MACT63, and the FC, taxable subcontractor companies, such as Shell and Murphy, have to pay the 5% SST when imposed on Sarawak’s O&G or the petroleum products. But the contractor, Petronas, disagrees.
(i) Under Item 8(j)of the Federal List, subject to Item 2(c) of the State List (admitting the exclusive right to issue PSCS etc), the fudged portion starting from “oils and oilfield; purchase, sale, import, export of minerals (O&G) and mineral ores … [oil trading] petroleum products; regulations … labour … safety in mines … oilfields …” was therefore void.
(ii) Article 93B(3) of the
FC on its second part and that Item 8(j) were fudged deliberately for the purpose of blocking SST as the only alternative option under Item 7 for the State to impose SST instead of imposing the sewnup 10% ad valorem royalty on ‘mineral oil’ under Item 3 Part V, 10th Schedule. That cash payment, under PDA 1974, is royalty under law, equity and ADAT.
(iii) Now, it is pointless to impose Federal ST on the O&G, except on the petroleum products, as Federal/Petronas have 80% to 85% of the total revenues already, unless Petros takes over the ownership with exclusive right of licensing the PSCs with the State getting 20%, namely 5% royalty and 15% SST.
Then, Federal definitely will impose the fifth tax, Federal SST on the O&G.
Those two fudged articles with Article 76(2), Item 13 of State List and the Federation’s definition as Malaya in Article 160 have not been amended. So, they should be amended under Article VIII, MA63 under Datuk Liew Vui Keong’s portfolio.
2. (i) SSTO 1998 are enforceable against any taxable person with seizure and forfeiture under Section 45; magistrate have full jurisdiction under Section 40; taxable person must furnish audit certificate under Section 54; Security for payment under Section power 26; power of arrest under Section 37; and penalty for late payment of RM20,000 plus.
3. When the State’s comptroller of SST or its State Government it self as the ‘aggrieved person’ has appealed to the State Financial Authority ‘SFA’ on the refusal on payment, SFA’s decision will be “final and not subject to review by any court:” under Section 57(2) nor under equity nor ADAT.
That will be in the normal Civil Court or the better alternative [Constitutional] Native District (Resident’s) Courts under Section 40 of SSTO 1998 and Sections 3 and 4(i) of the Native Court Ordinance 1992 (‘NCO’) with a magistrate and 2 assessors, one of them, an important tax expert, with the Native Court Rules 1993 (‘NCR’). The Resident can act as the Registry.
4. The best approach would be for the State Comptroller or State Government to file in the Constitutional Native Court first under Section 4(1) of the NCO 1992 after obtaining this final decision of the SFA which is not subject to review by any court under Section 57(2), and then proceed for various enforcements under SSTO 1998.
Section 57 of SSTO 1988 reads as follows:
“57.—(1) Where any person disputes the decision of an authorized officer acting in the course of duty, he may appeal there from to the Comptroller whose decision on such dispute shall, subject to subsection (2), be final.”
(2) Any ‘person aggrieved’ by a decision, other than a decision referred to in subsection (3), of the Comptroller may, within thirty days of being notified of such decision, appeal to the State financial authority whose decision there on shall be final and not be subject to review in any court.
(3) Any taxable person who is aggrieved with a decision of the Comptroller regarding assessment of State sales tax under section 21 or 25(1), tax surcharge under section 23 and penalty for late payment under section 28 may within thirty days from the date of receipt of such decision appeal to a Board of Review, appointed by the Yang di-Pertua Negeri.
(4) The composition of the Board of Review…”
5. Section 40 of SSTO states clearly: “not with standing the provisions of any written law to the contrary, a court of a magistrate in the State shall have jurisdiction to any offence under this ordinance and to impose punishment under this ordinance for any such offence”.
6. In brief, the [Constitutional] Native District Courts [Resident’s] have to be properly upgraded, but even now, can hear the SST’s cases under Section 40 of SSTO 1998 with the nexus to O&G under ususcapio (long possession) of the land under ADAT also.
7. The Federal AG has no jurisdiction over the Native or Syariah Court under Article 145(3) nor the Proclamation of Emergency can be extended under Article 150(6A) on Sarawak’s Native law or ADAT.
8. The onus of proof for SST and other taxes lie with the defendants under Section 13(I) while the cabinet/DUN has the power to fix the SST from 5% say to 15% by gazetting.
9. Under Section 39 of SST, offences can be prosecuted by the public prosecutor or any person authorized by him under Section 377(b) of the Criminal Procedure Code (ACT 593).
10. Articles 5 (on liberty) and 8 (on equality) of the FC are subject to several exceptions on race, religion, agreed terms of IGC R62, MACT63, MA63, and FC, Articles 145(3) and 150 (6A) and they are are not applicable to SST nor generally to tax legislations. The doctrine of separation of powers refers normally to the Federal Government.
11. Sarawak is allowed “the import … and excise duty on petroleum products” under Clause 24(2)(a) of IGC R62. Why ban its SST on its O&G and by-product produced in its State?
12. How could mineral water be under ‘minerals’ along with Sarawak’s sand, stones under Federal List in Item 8(j) which are clearly under the Land Code 1958 (‘SLC’).
II. Petroleum Development Act 1974 (PDA) with ACT 354 1976 (12 nautical miles of territorial waters) EEZ Act 1984, Fisheries Act 1985 (for fisheries only), (‘FA’), Sarawak’s boundaries at sea, Territorial Sea Act (‘TSA’) similar to ACT 354 “called the 5 Offending Acts”, never approved by DUN nor adopted as State laws, were unconstitutional, null and void and illegal and invalid, unenforceable against Sarawak because of serious violations of 7 Federal Entrenched Constitution Provisions (‘7FCs’) and 7 Protective Municipal Laws of Sarawak (‘7PMs’), already amplified in Articles Parts VIII (A), (B) and (C).
1. On the 1st level, PDA 1974 and those Offending Acts , never being approved by DUN, have violated the most serious proviso of Article 2(b) of the FC which forbids parliament to pass these federal laws even with the two third majority if the Borneo States have not passed the same offending Acts first, otherwise, they would be committing unconstitutional and illegal alterations of Sarawak’s 4 boundaries, namely 350 nautical miles of Continental Shelf. 200 nautical miles of EEZ, 12 nautical miles of territorial waters and Sarawak boundaries at sea, unless approved and passed by the Borneo States first and adopted reversely by Parliament, distinct from Sarawak adopting subsequently as State Laws under Articles 76(3) and 76(1)c.
2. On the 2nd level there should be absolutely no compulsory acquisition of Sarawak’s land with its O&G and minerals below. PDA 1974 and the 3 others have thus seriously violated the entrenched Articles 95D, 76(1) 76(3) and (4), 80(3), 4(i) and Items 2(a) on land with oils below 2(c) on the exclusive right to issue O&G’s licenses or PSCs and RSCs and 2(d) State List 9th Schedule with no compulsory acquisition, reinforced by Article 76(4), and Article 95D, collectively called the ‘7FCs’.
3. (i) On the 3rd level, under Article 76(1)(b), Parliament is prohibited to pass laws “for the purpose of promoting uniformity of laws of two or more States, [namely States of Malaya, Sabah and Sarawak] “with respect to any of the matters mentioned in Clause 76(4)”, namely on the compulsory acquisition of Sarawak’s O&G under Sections 2(1), 2(2) and 2(3) of the PDA 1974 and the void and illegal vesting instrument under 2.2 of PDA 1974 to Petronas on 27th March 1975 with the
Oil Agreement of Sarawak/ Petronas of that same date, never approved by DUN under Articles 76(1)(c) nor 76(3) nor 2(b).
(ii) Articles 13(1) and (2) of the FC on compulsory acquisition of [O&G] with reasonable compensation were designed only to be applicable to the States of Malaya, as Articles 95D, 76(4) and Items 2(a), 2(b) and 2(d) of the State List were entrenched specifically to prohibit that in the Borneo States.
4. (i) On the 4th level under Article 162(1) and (2), Oil Mining Ordinance 1958 (‘OMO’) with its amendment in 2018, un repealed Order in Council 1954 (‘OIC’) 3 years before Merdeka 1957, Sarawak Land Code 1958 (‘SLC’) with recent amendments have been confirmed as valid ‘existing laws’ on Malaysia Day which were never repealed, but subsisted even if they were amended, where even Article 75 cannot invalidate or repeal them. (ii) (a) These void and illegal Offending Act shave altered Sarawak’s 4 boundaries and breached Sections 32(1), 36(2), 209(1) of SLC; and PSCs land/PSCs titles would only be effective upon registration under its Section 112. Sarawak Supplemental Deed 1956 and Sarawak Interpretation Ordinance 2005 on Sarawak territorial water deemed by international law were reinforced now specifically under the United Nations Convention on the Law of the Sea 1982 (‘UNCLOS 1982’), ratified by Malaysia, and came into force on 14th November 1996.
(b) Article 76 of UNCLOS 1982 has reconfirmed Sarawak’s Coastal State exclusive right with the Continental Shelf up to
350 nautical miles; under Articles 55, 56, 57, Sarawak’s EEZ (‘not off Sarawak’) of 200 nautical miles; under Article 3 Section 2 Part III, Sarawak’s Territorial Waters of 12 nautical miles under International Law have all reconfirmed the 7PMs with Sarawak’s dominion (ownership) of its O&G while the Federal has only imperium (administration and supervisory rights) on Sarawak’s O&G.
(iii) The 7th Protective Municipal Law of Sarawak (‘PMS’) would be the Native Law and ADAT (custom and usage), under ususcapio. The long possession of land with minerals, oil under the communal societies was administered and ‘taken over’ with ADAT by the Sarawak Governments, under ususcapio, and under customary international law.
(iv) The coveted ‘crown jewels’ of 12 nautical miles plus 3 nautical miles were legislated without any basis on Sarawak’s shallow continental shelf, compared to Sabah deeper waters, with much cheaper costs of explorations and productions of US$6 to US$8 bbl in the 4 formations of limestone reefs.
5. The alternative technical and standard pleading only would be, even assuming PDA 1974 were applicable, but denying that to be the case, the amount of compensation of 5% of O&G, or ‘Musang King Durians’ compared to Federal/ Petronas’s 80-85% would be grossly inadequate, inequitable and unfair.
The test is not how much Sarawak has benefited for the last 43 years but how much it has lost in the last 43 years from its oil fields and payments of royalty, also based on incorrect productions and in the future before the O&G runs dry, unless Sarawak is paid 20% (royalty plus 15% SST) now. Oil recovery is only 29% and gas 40%.
6. (i) The vesting instrument was void and illegal under 2.2 of PDA 1974, executed by Tun Rahman as the Chief Minister without the DUN’s approval, was solicited under Tun Razak’s fraudulent misrepresentation and concealment. It was represented and intended only to show proof that Sarawak has agreed in perpetuity and convince Tun Mustapha and Tun Fuad to amend Section 48 of Sabah Land Ordinance from 99 years to “in perpetuity”, similar to Section 13(1)(a) of the Sarawak Land Code.
(ii) That request was rejected by them including the 5% ‘paltry’ royalty. So, the rescission of that fraudulent, void and illegal and invalid vesting instrument would be in order under fraudulent misrepresentation and under Marbury vs Madison (1803). This history is critical in understanding the truth and reasons on why PDA 1974, that vesting instrument and Sarawak Oil Agreement were void, illegal and never have been approved by DUN. There was also duress of political alignment to the Federal Government. Sabah only signed the Oil Agreement on 14th June 1976 after Tun Fuad had that unfortunate fatal air crash 8 days earlier.
(iii) A corollary would be Section 223 of the Companies Act 2016 where only the shareholders can approve the disposal of a substantial asset of the company, but not by the Chairman/CEO nor the Board.
In brief, the void and illegal PDA 1974, the Vesting Instrument and Oil Agreement are red-herrings and irrelevant for the imposition of the SST under the SST Ordinance 1998, sanctified by that Item 7 of the FC, IGC R62, MACT63 and MA63 unconditionally. So those void and illegal fudged Articles must be expunged to maintain the honour and sanctity of our supreme FC.
III. 1. The cash payment 10% was royalty and the Federal could not pay royalty to Sarawak under Item 3 Part V, 10th Schedule (including mineral oil) because royalty was restricted to 10% ad valorem (production costs at site) only.
But before PDA 1974, Shell paid under the old concession system 12 ½ %ad valorem royalty, with a visible short change of 2 ½ %. So, royalty was disguised as cash payment to avoid this dilemma and change to FOB basis under PDA 1974 when prices of O&G have shot up 2 to 3 times due to OPEC in 1973.
2. That unofficial and additional 5% cash payment for royalty, was due to the consideration of an additional but unofficial fund, not grant, to be paid to Sarawak in addition to the official 5% under Sarawak’s Oil Agreement, totaling 10% paid to the Federal Government first before costs recoveries on trust, but not for Sabah in aborting the declaration in the Privy Council, London that the PDA 1974 was void and as illegal and unenforceable under basically the 7PMs and 7FCs, particularly Article 2(b) on the illegal alterations of the four boundaries of Sarawak.
3. The balance of this unofficial 5% ‘royalty’ or fund accurring daily over 853,000 bbl/Boe now would be over RM25 billion, verifiable under Federal payment system, enough to pay the SST and additional royalty of 5% first in staggered payments. How much Sarawak being short changed for over 43 years with royalty based on Petronas’s annual accounts filed with SSM?
4. In 2017, there was a whooping difference of net profit of RM19.298 billions discrepancy between SSM’s accounts reflecting RM26,152,000,000 net profit against RM45,400,000,000 net profit declared in the press publicly! Sarawak should discuss on restitution.
5. Why the unofficial 5% was not in a letter but orally? Because Tun Razak defended that that could be leaked out to Sabah which would demand also that 5% unofficial royalty on the top of the rebate of 40% on Federal income received from Sabah as grants under Item 2(1) of Part IV, 10th Schedule, not given to Sarawak as equal partners.
6. However, that oral assurance is enforceable under Article VIII of MA63, customary international law and Article 3(a) of the Vienna Convention on the Law of Treaties, as MA63 is a multi-lateral treaty and constitutional agreement.
7. “Royalty means share of the products of proceeds from the oil and gas produced and reserved to the owner of land for permitting another [Petronas] to use the property” MCculoch vs Almach (Oklahoma 1941).
So, under Item 8(j) with Item 2(c) of the State List on the exclusive licensing of PSCS, it does not make any sense: “Sarawak, you issue all the PSCS on all the O&G belonging to the Federal Government” under OMO 1958, Land Code 1958, OIC 1954, Article 2(b) and the rest of the 7FCs and 7PMs.
We hope our PM with the right constitutional and legal advices will rectify these breaches outside his watch making Putrajaya shining again in the hill, as he has passed the PD (amendment) Act 1985 allowing Petronas to undertake commercial enterprise retrospectively; and Petronas will follow the Rule of Law, Edmund Burke’s Functions of Law and 7FCs and 7PMs and file the true productions of Sarawak’s O&G in SSM’s audited annual accounts which have excluded about 35% of share profit/split barrels of O&G directly to the treasury for over 4 decades.
So, on grounds of law and equity, we hope Petronas and the Federal Government would equitably and fairly pay out all the right royalties and SST, under SSTO 1998, FC, IGC R62 sanctioned by MACT 1963, the mother of our supreme Federal Constitution of our country.