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Sabah has been trying for years to negotiate the return of the 40 percent tax revenue entitlement under the federal constitution, which it says is vital for economic development.
The Constitution provides that tax revenue, including all forms of taxation, is centralized at the federal level. The federal government then returns a certain percentage of tax revenue to the states based on their population proportion.
Under the Malaysia Agreement 1963 (MA63), the federal government was supposed to return 40% of Sabah’s revenue to the autonomous state, but this target has not been met from 1974 to 2022.
In 2022, the federal government and the Sabah government agreed to provide “interim” payments to Sabah until 2026, pending further negotiations on the original 40% agreement.
In May this year, Anwar said Sabah’s RM16 billion federal funding allocation for 2024, excluding income-based grants to states, exceeded its request by 40 per cent, Bernama reported.
He also said his government has taken more steps to address Many unresolved issues under MA63 In the year and a half since he became prime minister, his approval ratings have surpassed those of anyone in power over the past decade.
But the former president of the Sabah Bar Association criticised Anwar’s remarks as misleading, noting that federal grants do not flow directly into state coffers and can only be used for specific expenditures such as development projects.
“In contrast, the 40 per cent net income entitlement under MA63 is a special grant that should be passed directly to the Sabah state government,” Mr Roger Chin said, according to a report in The Malay Mail in June.
“This is a fundamental component of Sabah’s fiscal autonomy and self-determination, enabling the state to invest in infrastructure, public services and development initiatives according to its own needs.”
However, Anwar clarified on Aug 4 that the RM16 billion was Sabah’s entire allocation for 2024, to be used for spending on teacher salaries, road repairs and border security, and not just for development projects, Bernama reported.
“If you want to be friends, you have to act like friends. Friendship has to have etiquette. You don’t need to thank us, just show a little gratitude. If (the grant) is not enough, we can negotiate and ask for more in a friendly way,” he said.
Anwar stressed that he intended to honour Sabah’s rights under the Federal Constitution and that negotiations were ongoing, stressing that his government had done more in this regard than previous administrations.
“Yes, we should fulfil our commitments, but this year we have done more than in the previous 10 years. Thank you for that. It’s not that I need a ‘thank you’, I don’t need a thank you. But what you need is to accept the facts, and if you are not satisfied, renegotiate,” he said, according to Malay Mail.
“Other Sabah representatives in the Cabinet – Ami Zan, Evan… they always say it’s not enough. I’m also tired of them constantly asking for more. But it’s OK, as long as they ask politely as friends.”
Mr Anwar was referring to Domestic Trade and Cost of Living Minister Armizan Ali and Entrepreneur and Cooperative Development Minister Ewon Benedick.
On July 18, Sabah Deputy Chief Minister and Keningau MP Jeffrey Kitingan urged the Anwar government to prioritise the 40 per cent revenue allocation for Sabah.
He said the proposed 12-month period to implement the allocation, which was discussed and agreed upon at the MA63 technical committee meeting on the issue, expired on the same day, the New Straits Times reported.
“Despite this, no progress has been made or any announcements made on this critical issue,” he said. “This inaction clearly demonstrates a lack of seriousness on the part of the federal government.”
Meanwhile, the Sabah Bar Association is conducting a judicial review of the state’s 40% interest claim.
On 18 June, the Court of Appeal dismissed the appeal filed by the Commonwealth Attorney General against the High Court’s decision to allow the judicial review and directed the High Court to fix a date for the full hearing of the judicial review.
The Bar argued that the 40 per cent grant from 1974 to 2021 still needed to be paid and that both the federal and Sabah governments had breached their constitutional duties by failing to review the 1974 payments as required by law.
Mr Tan, a former Sabah Bar Association president, reiterated on Monday that Mr Anwar should not confuse Sabah’s 40 per cent special grant with the federal allocation.
“The RM16 billion allocation relates to areas of inherent federal responsibility. These include education, security and infrastructure, which are basic services that every state expects and receives as part of the federation,” he was quoted as saying by Vibes news portal.
“This special grant is designed to address Sabah’s unique needs and contributions, providing additional financial support above and beyond the federal grant standard.”
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