Petronas Pays $700M in Tax to Sarawak State after Dispute Settlement

September 18, 2020

Illustration - Credit:corlaffra/AdobeStock
Illustration - Credit:corlaffra/AdobeStock

Malaysia's state energy firm Petronas on Thursday paid over $700 million in sales tax to the energy-rich state of Sarawak, in a settlement that could open the way to more such payments to state governments.

The payment comes just two weeks after Petronas reported its first quarterly loss in nearly five years due to a coronavirus-related demand slump and lower oil prices.

Analysts and sources close to the company had said that a payment to Sarawak could encourage other energy-rich states in Malaysia to demand sales taxes annually, hurting Petronas' finances.

Petronas, which is fully owned by the Malaysian government, had been fighting Sarawak state's demand for the sales tax in court but the two parties agreed to unexpectedly settle earlier this year.

Petronas is a significant source of revenue for the federal government and a hit to its finances could also affect the annual dividend it pays to the government.

The chief executive of Petronas quit in June after disagreement with Malaysia's prime minister over the settlement, Reuters reported, citing sources close to the government and the company.

The Sarawak state is run by a close political ally of premier Muhyiddin Yassin, who sources have said is open to giving more oil money to the state. The then chief executive Wan Zulkiflee Wan Ariffin has opposed it.

Petronas presented a cheque for 2.96 billion ringgit ($715 million) to the Sarawak government, state news agency Bernama reported.

"The payment represents Petronas' full and final settlement for the sales tax for the year 2019," the company said in a statement.

The payment for this year will be made upon assessments by Sarawak authorities, it said.

($1 = 4.1360 ringgit) 

(Reporting by A. Ananthalakshmi; Editing by Toby Chopra)

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