DUN authorised under Federal Constitution to impose State Sales Tax — Sarawak legal counsel

Datuk Seri JC Fong

KUCHING, Feb 4: Article 95B(3) of the Federal Constitution authorises the State Legislature to pass laws to impose State Sales Tax.

“Article 95B(3) was incorporated into the Constitution of Malaysia by the Malaysia Agreement 1963 as special constitutional arrangements to provide for adequate revenues for Sabah and Sarawak.

“The proposal for the state to have powers to raise SST originally came from the Cobbold Commission which reported, in 1962 that the sources of revenues provided for the states under the Malayan Constitution would not be adequate to provide for the funding needs of the Borneo states.

“The commissioner recommended that although the overall finance and taxation powers should continue to vest with the federal government the Borneo states should have the power to impose [State Sales Tax],” according to State Legal Counsel Datuk Seri JC Fong in a statement today.

He pointed out that this proposal was accepted by the Inter-Governmental Committee (IGC), set up to work out constitutional arrangements to safeguard the special interests of Sabah and Sarawak.


“The State Legal Counsel argued that therefore, if the intention at that material time was for [State Sales Tax]to be imposed only on matters in the State List, as Petronas argued, it would mean that the tax will fall on the same sources of revenue that was available pre-Malaysia day.

“Such an argument would be illogical as it would not be possible to yield additional revenue needed for Sabah and Sarawak as envisaged by the Cobbold Commission,” argued Fong, who is the legal counsel representing Sarawak in the case against Petronas for non-payment of State Sales Tax.

He asserted that if there was any intention that State Sales Tax could only be imposed on matters in the State List, that would have been expressly spelt out in Article 95B(3).

“Since the then Finance Minister for the then Malayan government, Tun Tan Swee Sin, was the member of IGC, he would have insisted that State Sales Tax should only be imposed on matters on the State List if the intention of the then Malayan Federal Government were to protect federal subject matters from the incidence of State Sales Tax.

“However, Tun Tan did not feel it necessary to insulate federal subject matters from being charged with [State Sales Tax],” Fong asserted.

He opined Article 95B(3) is a taxing provision, and so are also the State Sales Tax Ordinance, 1998 and the 2018 Order making petroleum products taxable.

“These taxing statutes should be given a purposive interpretation to give effect to the underlying reasons or purpose for which they are enacted.

“Applying this purposive approach and applying the facts to the relevant provisions, Petronas whose, mode of business is done on an f.o.b. (freight on board) basis, whereby the sale takes place when the petroleum products were put on board vessels and tankers for the delivery to the buyers outside Sarawak.

“The sale takes place in Sarawak and the incidence of the tax occurs when goods upon deliver of the goods to the export point at Bintulu Port and Miri Port.

“Thus, Petronas is involved in the sale of petroleum products and is liable under section 8 for payment of SST,” Fong argued.

Fong insisted that SST is not an export tax but a sales tax imposed on the sale of petroleum products in Sarawak.

“The delivery of the goods to persons outside the state is only to comply with the condition of sale relating to shipment of the petroleum products to the buyer.

“Thus Petronas was legitimately charged SST for the sale of the petroleum products,” Fong emphasised. — DayakDaily