He said this had been agreed upon by Prime Minister Dr Mahathir Mohamad at a Special Cabinet Committee meeting on Dec 17 following a proposal by Economic Affairs Minister Mohamed Azmin Ali.

The meeting was proposed as Petronas had taken cautious measures following Sarawak’s interest to take part in downstream and upstream oil and gas activities in the state.

At the meeting, Finance Minister Lim Guan Eng expressed the opinion that the sales tax imposed on petroleum products beginning Jan 1 this year was inappropriate, Abang Johari said here today.

However, the state government emphasised it was its right to implement it under Article 95C and Schedule Ten of the Federal Constitution.

“Sarawak also felt that it must take into consideration the Petroleum (Income Tax) Act (Pita) imposed by the federal government,” he said.

Abang Johari said Sarawak could actually impose a higher tax percentage, for example, 10%, but the state government also considered the current economic situation.

He said Lim had voiced his opinion on grounds that it could raise costs and drive away investors in the oil and gas industries.

“My reply to him is the right to impose tax is allowed under the constitution if it is not competitive to the federal government, and the federal government could recalibrate the tax structure as currently it also imposes petroleum income tax at 38%,” he said.

He proposed that the petroleum income tax be reduced to 33%.

“Why must we sacrifice our right?” he asked, adding that members of the Special Cabinet Committee also agreed with him.

Abang Johari said five matters were discussed at the committee meeting on Dec 17, and the state government supported the proposal to amend Article 1(2) of the Federal Constitution to restore the status of Sabah and Sarawak as equal partners with Peninsular Malaysia.