Points supporting, against Sarawak’s rights over oil and gas

Emeritus Professor Datuk Dr Shad Saleem Faruqi

By Nancy Nais

KUCHING, Oct 8: Who owns the oil and gas in Sarawak?

According to respected constitution expert Emeritus Professor Datuk Dr Shad Saleem Faruqi who also holds the Tunku Abdul Rahman Chair as Professor of Constitutional Law at the University of Malaya, regardless of oil and gas under the sea or ground, found or not found, it is in the hands of the federal government.

Speaking at a lecture titled ‘The Spirit of the Malaysia Agreement 1963 (MA63) in Our Constitution’, Dr Shad said these are all in the federal list under Schedule 9 List 1, Item 8(j) and therefore any regulation of or dealing with “petroleum products” are also in the federal government’s hands.

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There is an ongoing dispute between national oil corporation Petronas and Sarawak about the state’s constitutional right to impose State Sales Tax (SST) on the sale of petroleum products under Article 95B(3) of the Federal Constitution and the State Sales Tax Ordinance 1998.

“Petronas could argue that petroleum products are in the federal list and Sarawak should only impose sales tax only on items or products in the state list. Among these are land, treasure trove, agriculture, forest, markets and fairs, theatres, cinemas, places of amusements, and riverine fishing. In the Supplementary Concurrent list are shipping, fishing and fisheries, supply of water and electricity,” Dr Shad said.

Since sales tax is also in the federal list and now that Sarawak government wants to charge sales tax and it is in the state list, Dr Shad said that this is where the dispute arises.

He added that Petronas is now telling Sarawak, that the state can charge sales tax but only on items or issues in the state list, not something that is in the federal list.

Meanwhile, Dr Shad opined that the state could argue that on a literal interpretation of the constitution, the power to impose sales tax is indeed a general power on all sales and purchases in the state.

“The power is not limited by such words as ‘matters specified in the state list’. Instead Article 95B(3) says that ‘any sales tax imposed by the state law shall be deemed to be among the matters enumerated in the state list,” he said.

There is also the possibility of double taxation written within the contemplation of the drafters of Article 95B(3)

The only limitation of the power of the state is that the federal sales tax shall be met out of the tax collected by the state.

“Therefore, I am of the opinion that such complex, contentious issue required thorough, comparative research. In the last resort an authoritative judicial decision may be needed. To avoid a fight, the advisory jurisdiction of the Federal Court under Act 130 can be invoked,” he added.

Apologising to the participants who attended the event, Dr Shad said “Your past leaders and lawyers had let you down in 1963 over the oil and gas issue.”

Dr Shad (centre) with Chief Judge of Sabah and Sarawak Tan Sri Datuk Seri Panglima David Wong Dak Wah (second left) and organisers of the lecture titled ‘The Spirit of the Malaysia Agreement 1963 (MA63) in Our Constitution’.

On Special Grants, he said Sabah and Sarawak gets some special grants under Articles 112C(a) and 112D.

“However, there are allegations that these states do not derive the kind of financial benefit they deserve as a result of their contribution to the national coffers from petroleum, hydroelectricity and tourism.

“There is discontent about inequitable sharing of resources and lack of fiscal federalism. It is alleged that MA63 of July 9, 1963 had promised 40 per cent share of states revenue. It is further alleged that federal allocations to the Borneo states do not take into account the huge direct and indirect federal earnings from these states.”

Of special interest is the 5 per cent oil royalty these states received.

Dr Shad said the federal government’s answer is that under the constitution, again, oil and oilfields are in federal hands. Sabah and Sarawak are entitled only to import duty and excise duty of petroleum products (10th Schedule, Part V, Para 1).

“The 5 per cent royalty on oil for Sabah and Sarawak is not derived from the Constitution but from the freely negotiated Petroleum Development Act, the Petroleum Mining Act and the Assignment Deed between the states and Petronas.”

On other MA63 points, he also said, regrettably some constitutional amendments have diluted the special position of Sabah and Sarawak.

An example is the amendment Act A354 (1976) to amend Article 1(2).

“Previously, the article stated that the states of the Federation shall be (a) the 11 states of Malaya, (b) the two Borneo states and (c) Singapore. Sabah and Sarawak were mentioned separately to underline their special status. Now Sabah and Sarawak are included in Article 1(2) as two of the 13 states and this is a status down-grade.

“So it is worthy of exploration whether Amendment Act A354 (1976) to amend Article 1(2) was submitted to the Governors of Sabah and Sarawak for their consent,” he said.

The Pakatan Harapan (PH) government’s recent attempt to restore the pre-1976 law failed due to lack of a two-thirds majority.

It is alleged that the state governors, being federal appointees, have not been the protectors of state interests they were meant to be. For this reason, federalisation of critical state matters such as water (Act 26/1963) and tourism (Act A885) has taken place.

“After 56 years down the road, not all is well with the Borneo states’ relationship with the federal. In many areas, Sabah and Sarawak’s autonomy has suffered retreat due to constitutional, political, cultural and religious developments.”

He urged leaders of the federal government to recognise Sabah and Sarawak restiveness as real and must be addressed.

“The issues are not merely about equity and efficiency in financial relations but extend to perceived interference with both state’s cultural, ethnic and religious uniqueness.

“We need to recapture the spirit of accommodation, moderation and compassion that animated the leaders of MA63. The federal government and the leaders of Peninsular and East Malaysia must re-dedicate themselves to the pacts of the past,” he concluded. — DayakDaily