Right to impose sales tax does not depend on federal, state list, says state legal counsel

By Peter Sibon and Karen Bong

KUCHING, Oct 9: The Sarawak government today said Emeritus Professor Datuk Dr Shad Saleem Faruqi’s lecture on ‘The Spirit of the Malaysia Agreement 1963 (MA63) in our Constitution’ in Kuching last night was merely his personal view and at best, against the spirit of Malaysia Agreement 1963 (MA63).

As such State Legal Advisor Dato Sri JC Fong emphasised that Sarawak has all the legal rights to impose taxes on goods and services which are ‘manufactured’ in Sarawak.

“What Prof Shad said in Kuching on Petronas’ arguments, is not only against the spirit of MA63 but also, if he were right in his opinion (which I am sure would be of grave concern to federal tax authorities) then, it will open the floodgates for taxpayers not paying taxes imposed by federal laws on subject matters which are clearly under the State List, like transfer of land or for taxpayers to challenge in Court the imposition of taxes like real property gains tax and stamp duties whenever they transfer or dispose of land.

“The proper and only logical view must be that the right of either the Federal Parliament or State Legislature to impose taxes like State Sales Tax (SST) or federal sales tax does not depend on whether the matter or goods are on the federal list or state list.

“It depends on the nature of the transaction, the income generating activity or in the case of SST or federal sales tax, whether the particular good is declared a ‘taxable’ item and whenever a ‘sale’ as defined in the law, occurs,” Fong told a press conference at the State Legislative Assembly (DUN) Complex here today.

Assistant Minister of Law, State-Federal Relations and Project Monitoring Sharifah Hasidah Sayeed Aman Ghazali was also present.

Dr Shad had put forth points supporting the claim that the state could only impose (SST) on items under the State List in the Federal Constitution when delivering a lecture on ‘The Spirit of MA 63 in our Constitution’ in Kuching last night.

“He (Dr Shad) was articulating what seems to be Petronas’ arguments that the state cannot impose SST on petroleum products which is in the Federal List.

“The ‘spirit of MA63’ is clearly expressed in para 24(1) of the Inter-Governmental Committee (IGC) Report which is now an annexure to MA63. This para reads, ‘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 an state sales tax and provided that discriminatory rates would not be imposed on goods of the same type but of different places of origin.’

“This recommendation is now incorporated into Article 95B(3) of the Federal Constitution (FC). The recommendation and Article 95B(3)(c) clearly envisage that SST and federal Sales tax could be levied without discrimination on goods of the same type,” he said.

Fong pointed out that, “federal sales tax shall be met out of sums collected from a person liable for that tax before a charge for a State Sales tax.”

“This means where a taxable person is charged both federal sales tax and state sales tax on goods of the same type, federal sales tax enjoys priority in payment. There is no restriction stated in Article 95B(3) that SST can only be imposed on those goods or services forming the subject matters in List II or List IIA (State List) in the Ninth Schedule of FC.

“Amongst the goods subject to federal sales tax listed in the Third Schedule to the Sales Tax (Rate of Tax No. 2) Order [P.U.(A) 93/2008] are ‘Petroleum gases and other hydrocarbons: liquefied and natural gas’.

“Therefore, pursuant to Article 95B (3) of FC, 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,” he added.

Fong reiterated that taking Dr Shad’s (and what he said is Petronas’) argument to its logical conclusion and/or conversely, federal sales tax should not be levied on matters in the State List.

“He pointed out, for instance, that turtles and riverine fishing are matters in the State List. Then why turtle meat and freshwater fish are listed as taxable goods in the First Schedule to the Sales Tax (Rate of Tax No.2) Order, 2018?” he questioned.

“Since Forestry is in the State List, federal sales tax should not be imposed on ‘dark red Meranti’, ‘light red Meranti’ and ‘Meranti Bakau’ produced from logging licences issued by the state.

“The federal government’s imposition of federal sales tax on these items on the State List serves to confirm that Sales Tax may be levied by federal government on matters in the state list, and likewise, SST may be levied on subject matters in the Federal List,” he said.

Fong (left) and Sharifah Hasidah holding the official statement countering the opinions raised by Dr Shad during a press conference.

Fong stressed that it is a cardinal rule of statutory, as well as constitutional, interpretation that no one, including the Courts and experts like Dr Shad should read into the law, words or provisions which are not there, based on the fundamental rule that judges and even ‘experts’ have no law making or law amending powers.

“Therefore, there should not be read into the clear provisions of Article 95B (3) FC, any words which have the effect of restricting or confining the rights of the state to enacting laws to impose SST only on goods which are on the State List.

“What is good for the goose is good for the gander, as the saying goes. If there could be implied into Article 95B FC a restriction on the exercise by the State Legislature to make laws to impose SST only on matters in the State List, then logically or conversely, a similar restriction ought to be read into the provisions of Article 96 which reads: No tax or rate shall be levied by or for the purposes of the federation except by or under the authority of federal law,” he explained.

Fong also argued that Parliament could not pass any law (federal law) on matters listed in the State List; and ‘federal purpose’ or ‘purposes of the federation’ is defined in Article 160(2) to mean, inter alia, purposes of the Federation in connection with… matters with respect to which Parliament has power to make laws otherwise than by virtue of Article 76. Additionally, Item 4(e) of List I (Federal List) covers ‘property and its transfer and hypothecation, except land’.

“This means Federal Parliament and the Federal Government has no legislative or executive authority over transfer of land or property. If, it is legally permitted to read into or implied in Article 96, that tax or rate can only be levied by federal law on subject matters in the federal list and for the purposes of those subject matters, then federal law cannot levy tax or rate on matters in the State List such as transfer of land [Item 2(c) in List II of Ninth Schedule],” he elaborated.

Logically, he said, in the premises, the constitutionality of taxes like real property gains tax and stamp duties (levied upon the authority of federal laws), which have to be paid, on transfer of land, could be successfully challenged in Court.

“I am sure many Sarawakians would want to take a similar stand like Petronas, not to pay these types of federal taxes which they view as unconstitutional, and the Registrar of Lands in Sarawak can be compelled by an Order mandamus from the Court, to register instruments of land transfers which have not been paid stamp duty,” he added. — DayakDaily