Malaysian independent Hibiscus Petroleum said it has elected to stop paying the Sabah state government a tax levy that it previously paid "under protest".

The state sales tax is levied by the Sabah government in relation to the sale of oil, produced from the Kinabalu oilfield, according to the terms of the Kinabalu oil production sharing contract, Hibiscus said.

Hibiscus said its subsidiary Repsol Oil & Gas Malaysia has paid the tax for the last two years "under protest".

The basis of Hibiscus' protest is that the point of sale for Kinabalu oil is its Labuan Crude Oil Terminal, which is within the federal territory of Labuan, and therefore outside the sovereignty and jurisdiction of the state of Sabah.

The operator appealed against the imposition of the tax to the Sabah government in September 2020, and followed up in 9 March 2021. To date, Hibiscus has received no response.

Hibiscus' board of directors has therefore resolved to discontinue the payment of the state sales tax, starting from a lifting of crude oil undertaken on 24 May 2022 through the Labuan Crude Oil Terminal, originating from the Kinabalu field.

Hibiscus said its board had received legal advice and tax advice that concluded there was "no legal basis for the Sabah state authorities to apply SST to the sale of crude oil which is carried out outside the state boundaries of Sabah (ie, from the federal territory of Labuan)".

Hibiscus is also the operator of the 2011 North Sabah Enhanced Oil Recovery production sharing contract, and maintains the state sales tax is not applicable there either.

Possible risks

Hibiscus said its discontinuance of the payment of the tax under protest (in the case of Kinabalu oil) and its non-payment of the tax (in the case of the North Sabah EOR PSC) "may lead to the state authorities taking action against HPB (Hibiscus), its subsidiaries and/or its directors".

"It is possible that such action may cause disruption to the group’s operations. However, after due and careful consideration of the position on a good faith basis, the board believes that its decision is reasonable, proper and in the best interest of the company."

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