Sabah to terminate work passes for two oil firms by Oct 1 unless arrears paid

KOTA KINABALU, July 19 — Sabah will be cancelling the working permits for two oil companies operating here if they do not settle the taxes and penalties owed within the stipulated deadline.

State Finance Minister II Datuk Masidi Manjun said a notice of action has been issued to Repsol Oil & Gas Ltd (Repsol) and SEA Hibiscus Sdn Bhd, two wholly-owned by Hibiscus Petroleum Berhad, on July 8 after a grace period of one week to settle the arrears.

“We issued a notice on July 8 to say that all working passes will be cancelled on October 1, 2022 if payment is not settled,” he told the Sabah State Legislative Assembly here this morning.

He was answering a question from nominated assemblyman Datuk Yong Teck Lee on the ongoing impasse between the state and the oil company.

Masidi said that several engagements have taken place between the two parties to settle their disagreements, with the state demanding some RM97.31 million in sales tax (RM66 million) and RM31 million in penalty incurred for late payment.

“We first sent a notice to claim the payment for sales tax owed to the state on June 8, and then on June 14, we issued a rejection of their appeal.

“On June 21, we sent a payment notice with the dues, along with the penalty totalling RM 97.31 million — RM65.65-for the sales tax and RM31.66 for the penalty — to be settled within 30 days of notice or the state will initiate civil action against them,” he said.

On June 22, a meeting was held between the state government, Petronas and Hibiscus to discuss the arrears. The result was a grace period of one week for Hibiscus to have further discussions with Petronas and inform the state of the outcome.

On July 1, the state met with Petronas to discuss the next course of action to be taken, which resulted in the notice to the company on July 8 to inform them of the impending work permit termination and cancellations.

It was previously reported that the two subsidiaries had refused to make payment after contesting that it sold its crude oil entitlement from the Kinabalu Oil Field at the Labuan Crude Oil Terminal facility “outside the sovereignty and jurisdiction of the state of Sabah” and hence should not be charged the SST.

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

Repsol stopped paying the SST after the Sabah Finance Ministry did not respond to its appeal against the tax enforcement.

The Sabah government has insisted that the companies are legally obliged to pay the state sales tax (SST) since they are operating in the state and are regarded as a “taxable person”, according to the Sabah Sales Tax Regulations 1999.

The state began collecting sales tax on its petroleum products, namely crude petroleum oil and natural gas/liquefied gas as of April 1, 2020.

As of June 30 this year, Sabah has collected some RM2.458 billion. For this year, the state is estimating some RM1.1 billion in tax, of which 73 per cent or RM808 million has been paid.

Masidi also announced that the state is planning to impose sales tax on ammonia and urea from August 1 this year, in an effort to diversify and increase its petroleum income resources.

“We estimate this will contribute some RM46 million to the state’s income this year,” he said.